Inflation will decline to 6.3% at the end of the current year, in the beginning of 2020 to reach the target range (5% ± 1. p.), and medium-term objectives 5% – at the end of 2020.
During this same period, Ukraine's economy will grow at a steady pace at the level of 3-4%. This is stated in the quarterly Inflation report for July 2019.
The inflation forecast remained unchanged from the April estimate.
Slowing inflation will continue to contribute fairly tight monetary conditions. Even for a gradual reduction in the interest rate to 8% in nominal terms in 2021 its real value throughout the period will remain high due to improvement in inflation expectations. Among other factors that will lead to a slowdown of inflation, balanced fiscal policy, the slowdown in wage growth, relatively low energy prices in the world markets, abundant supply of food.
The national Bank has raised its forecast for economic growth in 2019 (from 2.5% to 3%) and 2020 (from 2.9% to 3.2%) years.
This is due to the strong domestic demand, better terms of trade and the expected increase in grain yield. The acceleration of the economy in 2020-2021 years (up to 3.2% and 3.7% respectively) would also contribute to the easing of monetary policy and economic activity in the world.
In addition to the updated macroeconomic projections in the July "Inflation report" reviewed a number of special topics, including the following:
Publication of the forecast discount rate
National Bank started regular publication of the forecast discount rate are among the indicators of its own macroeconomic forecasts. International experience shows that this will enhance clarity and predictability of monetary policy for market participants; the strengthening of the effectiveness of key rate influence on market interest rates and inflation; reduction of the risk premium.
At the same time, this forecast is not an obligation of the National Bank to follow the published trajectory. The Board's decision regarding the level of interest rates may deviate from the forecast to reflect changes in the assessment of the risks to the achievement of the objectives of the NBU first of all, inflation, the emergence of internal and external factors, which were not foreseen in the baseline scenario.
Monetary policy of Central banks of countries whose markets are developing, in terms of increased trade confrontation
The escalation of the trade conflict between the US and China led to a contraction in investment activity and trade in the first half of 2019. This had a negative impact on the growth prospects of the global economy and the dynamics of world prices on commodity markets.
At the same time, these factors have led to a substantial softening of rhetoric of the fed and the ECB and the related investors ' interest in risky assets. However, the inflow of capital to emerging markets will be uneven. Benefits will be granted to countries with more stable macroeconomic Foundation, and most markets at the same time will face a fall in aggregate demand and devaluation pressure. Risks associated with the strengthening of trade confrontation, a slowing world economy and lower commodity prices are important for Ukraine.
Perceptions of inflation by households
Except for the last months, inflation expectations of households have tended to deviate most markedly from the goals and forecasts of the NBU, compared to expectations of enterprises, banks and financial analysts. This is partly due to the tendency of households to inflate the current estimate of inflation. This inflated the perception is common in many other countries, due to several factors.
Households tend to be better to remember the goods prices than their cheaper. They pay more attention to prices of essential goods that change rapidly, for example, food, petrol. The perception of inflation is also largely forms the individual structure of the consumer basket of each individual. In addition, the estimates of inflation by households differ according to age, place of residence, employment status.
In Ukraine, for example, older people are more prone to inflated estimates of inflation in comparison with young people. Also the people of the West appreciate the inflation is lower than people in other regions. But unlike other countries, in Ukraine the level of education of households has virtually no effect on the perception of inflation, which may indicate an insufficient level of financial awareness. The deepening of the National Bank communications with the public and the implementation of programs for financial literacy will contribute to sakuradou inflation expectations and, accordingly, to achieve the inflation target.
The relationship between productivity, real wages, and inflation
Labour productivity, real wages and inflation are closely related economic categories. The increase in real wages, which is ahead of productivity growth, is the factor of strengthening of inflationary pressure through the channels of aggregate supply and aggregate demand. Also, this indicator shows the efficiency and competitiveness of the economy. Accordingly, the adoption of monetary policy decisions including those based on performance analysis.
The growth of real wages in Ukraine was greatly accelerated in previous years, making up for the rapid decline during the crisis 2014-2015. It is also caused by strengthening of migration processes, a significant increase in the minimum wage in 2017 and worsening imbalances between demand and supply of labour. However, despite the growth of labor productivity in Ukraine, it remains significantly lower than in neighbouring countries, and in recent years high rates of growth of real wages became an additional factor of pressure on inflation.
Gross external debt of Ukraine: the latest trends
In recent years, the ratio of external debt to GDP is gradually decreasing, primarily due to the growth of the economy. Moreover, the total external debt is taken into account the arrears of the real sector with low probability of return, in particular, enterprises from the temporarily occupied territories, and pseudo-foreign operations. According to their deduction of the "real" amount of external debt would be significantly lower.
At the same time, the ratio of debt to GDP remains high, particularly in comparison with the countries-analogues. Also metrics assessment of the risks of the debt evidenced by the high vulnerability of countries to sudden changes in internal and external environment. This requires the further conduct of prudent fiscal and monetary policies, continued cooperation with the IMF and other international financial institutions and development of the domestic financial market.
According to the National Bank of Ukraine.