Inflation risks in Ukraine are increasing.
Inflation in Ukraine as a result year turned out to be far from Nabtsank's goal and government expectations. What will happen to prices in 2022 and what risks there are? a record for decades in industrial producer prices.
The authorities have already thought about compensation mechanisms for the population. There are options for this, but how and when they will have to be used is still open to question.
Prices are off target
Inflation in Ukraine at the end of 2021 amounted to 10% with the approved macro forecast 7 , 3%. In fact, this was a record rise in consumer prices since 2017, when inflation at the end of the year was 13.7% (December to December).
Food prices increased by 13.3%. Most of all, prices rose for sunflower oil — 38.8%, sugar — 28.3%, eggs — 19%, and bread — 18.7%. Only fruits fell in price — by 10.2%. Alcohol and tobacco products have increased in price by almost 10%.
The rise in prices in 2021 has become a global trend, as the effect of & # 171; covid & # 187; crisis in the economy. According to the IMF, around $ 16 trillion has been allocated around the world to support the economy and the population.
And although the jump in food prices was an inflationary challenge last year, today it is already showing signs of fading, says analyst & # 171; Alfa-Bank Ukraine & # 187; Alexey Blinov.
& # 171; The peak of food inflation was in September-October and amounted to 13.6%. Now it has already slowed down to 12.7%. This is not very different from the general inflation rate of 10%. If sunflower oil, sugar, eggs exploded last spring, then today they are already forming a wave of inflation slowdown. This does not mean that prices are falling, they just do not grow as much as before & # 187; — noted Blinov.
But now there are no reasons to expect a significant decrease in inflation rates. The data of the world markets indicate that the trend of rather high inflationary risks for food remains. Considering that food products make up almost half of the consumer basket of Ukrainians, the inflationary hit in the new year could be quite serious.
& # 171; The price of groceries will go up 10-20%, judging by the forward contracts. Grains, sugar, cocoa beans — everything goes up. This will have an effect on all countries that import inflation, and Ukraine is among them & # 187 ;, — the adviser to the President of Ukraine Oleg Ustenko explained to the publication.
Against this background, the actions of the National Bank on targeting inflation have not yet yielded tangible results. Last year, the NBU increased the discount rate five times — from 6% to 9%. However, it was not possible to approach the target of 5 (± 1%). Inflation is now not monetary, but commodity in nature, and therefore the NBU's steps in this situation are practically useless.
The National Bank continues to hope that by the end of the year the targeting policy will return inflation to the established framework. & # 171; The horizon of the influence of our actions is 9-18 months. If we see that the current surge in inflation risks turning into an inflationary spiral, we cannot hesitate & # 187; — said Deputy Head of the NBU Sergei Nikolaychuk in an & nbsp; interview with Forbes Ukraine & nbsp; at the end of 2021.
& # 171; Grocery checks & # 171; & nbsp; or direct subsidies
Due to the rise in food prices, the authorities are considering options for social assistance for low-income citizens. The emphasis is likely to be on targeted assistance rather than price regulation for all. As an example, which Oleg Ustenko spoke about the other day, the introduction of & # 171; grocery checks & # 187; through the system & # 171; Diya & # 187;. But this is just one of the possible tools.
& # 171; The idea of how to support the most vulnerable segments of the population is relevant. And there may be a dozen options for how to distribute this subsidy. But we are talking about an economy in which much is probabilistic. That is, it may or may not be & # 187 ;, — said Ustenko.
Among the possible instruments, according to him, there may be direct subsidies. Ustenko also clarified that the abolition of VAT or its reduction for certain goods is not being considered. Although last year this idea was discussed in political circles.
The government is already applying methods of price regulation to curb the rise in prices for oil products, gas and some social food products. Price caps apply for these products.
Whichever option the authorities choose, it will require additional budgetary expenditures and, consequently, compensators.
& # 171; The first alternative is to accelerate economic growth and go beyond the parameters of 3.8%, which are in the budget. The second is to try to make the tax administration work efficiently to increase revenue. Basically — by reducing & # 171; twists & # 187; (speech about fraud with VAT, & # 8212; ed.). And the third is to improve the work of customs, which will also increase budget revenues. The task of the first and second quarters is to create just such a gap & # 187 ;, — said the presidential adviser.
Energy and production as factors of inflation
In addition to the influence of world food prices, there are a number of other factors that reinforce negative inflation expectations. First of all, this is the preservation of high prices for energy resources in Europe and their increase in Ukraine, as well as a record for 24 years & nbsp; growth in producer prices & nbsp; industrial products — 62.2% at the end of 2021.
So far, the government, by regulating the price of energy resources for the population, manages to avoid direct influence from their rise in price on inflation. But not indirect influence.
& # 171; The rise in energy prices will still inevitably break through into consumer inflation through an increase in production costs, which is already becoming noticeable today. And the final tariffs for the consumer will have to be raised sooner or later. After all, & # 171; carpets & # 187; subsidies in the format of a low tariff carry huge risks for macrofinancial stability & # 187 ;, — said Alexey Blinov.
With an increase in tariffs, the interlocutor believes, it is necessary to support the population, but through targeted subsidies, based on the criteria of well-being and economical use of energy resources.
The second factor that will lead to an increase in inflation is the rise in prices in industry. In the mining industry, prices increased by 150.6%, in the supply of electricity and gas — by 185.4%, oil refining — 118.4%, food production — from 17 to 23%, processing industry — by almost 30%. p>
This growth has already partially affected inflation, for example, in the processing and production of food products, said Alexander Paraschiy, an analyst with Concorde Capital.
& # 171; But if we take the dairy industry, then we see that production inflation is higher than consumer inflation. If the situation does not change, for example, the cost of energy resources does not decrease, then the negative impact of this industry on inflation will continue. In other industrial sectors there will be a delayed effect, which will manifest itself during the year & # 187; — Paraschiy expects.
Inflation last year was restrained by the absence of serious fluctuations in the foreign exchange market, the expert recalled. & # 171; In December 2021, the hryvnia was slightly stronger than in December 2020. So there was no currency component at all or it was negative. This had a positive effect on the statistics & # 187;, — stressed Parachiy.
If three factors (growth in world food prices, energy resources and the effect of industry) work, inflation may turn out to be much higher than the expected level — in the state budget for the current year is based on the growth of prices by 6.2%. And then, to compensate the population, if, as a result, such a support format is used, much more funds will be needed. In addition, it will be necessary to revise the macro indicators and adjust the budget. It is possible that this issue will become relevant by the end of the first quarter.