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Inflation – continued to subside in July in MoM terms


News: According to Ukrstat, July CPI stood at 0.4% MoM, down from 1.0% MoM in June and moderating for the second month in a row. At the same time, the headline YoY index rose to 12.6%, from 12.0% YoY in June. 7mo14 inflation reached 12.6%. Prices on food and clothes items contracted, while the strongest increase was in the utility and housing costs amid a hike in heating and water tariffs. Growth in PPI also eased, to 2.7% MoM in July from June's 3.6% MoM, but the YoY reading increased to 22.5% from 15.9%, with utility tariffs once again being the main force behind the spike.

Our View: Last month, the devaluation effect on inflation was subdued and more of a remaining trail from the key impact of March and April. July saw a 4.0% MoM spike in utility and housing costs, which was notably less than May's 12% MoM spike due to a hike in gas prices. Otherwise, domestic demand remains weak, with signs of continued deterioration. From this viewpoint, the near-term potential for further inflationary spikes is limited in our view. At the same time, we think the inflationary profile might remain elevated on the medium-term horizon due to the continued UAH weaknesses and possible unwinding of monetary emission. The latest numbers are still in line with our current year-end 14.9% Dec/Dec CPI forecast.

Dmitri Fedotkin
VTB Capital analyst


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