Ukraine's consumer price changes have been fairly muted in November, with the price index edging up by 0.3% on the month, according to the State Statistics Committee. The lowest month-on-month (m/m) increase in a November for the last ten years has forced year-on-year (y/y) headline inflation down to 9.2%, which is still clearly above the most recent trough of the inflation cycle (July's rate of 6.7%), but most likely ensures that inflation will remain below 10%, a target which the government was adamant to achieve. It has done its part to accomplish the target--regulated prices, including heating and other energy tariffs, have been raised only modestly although the retail sales tariff for gas bounced by 50% as of 1 August. Prices for food staples inched up by just 0.1%, although the government's initiative for tighter price controls appears to have had only limited effect as prices for food staples, such as chicken meat, which had been controlled more fiercely, was among the items which showed the highest price increase on the month. Ukraine's producer price index, meanwhile, edged down by 0.3% m/m in November, following a 2.4% spike in October. Annual producer price inflation has resumed its slowdown as a result, hitting 18.9%, the lowest level since March this year. Energy wholesaling was once again the driving forces, albeit in reserve mode. Despite mainly driving the bounce of the price index in October, utility tariffs came down again in November. Prices for Ukraine's key export commodities posted sizeable increases in November, reflecting solid global demand. Manufactured metals prices, for example, rose 1.2% m/m and 21.6% y/y.

Significance:Consumer price volatility in Ukraine will remain muted in the short term, but will widen again during the first half of 2011 as authorities will have to allow for the gas price increase to eventually feed through to the market. However, the pressure on food price following the dismal summer harvest has worn off by now, so that a renewed bounce of food prices is unlikely as well. Ukraine's headline inflation will therefore decelerate during the first quarter 2011 as base effects take hold but accelerate again and peak at around 12% on the year in the third quarter. That said, inflation is not a major risk for Ukraine's recovery at the moment, except for the forthcoming increases of energy tariffs which will obviously hamper household purchasing power and dampen consumption.

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