The year began with a sharp rise in prices for certain goods and services. Experts are adamant: prices will rise on everything by the end of 2017.
The year began with a sharp rise in prices for certain goods and services.
This was most noticeable in certain food products, such as meat, which increased in price by 10-30% in some supermarkets. Prices for dairy products and vegetables also jumped. Minibus fares have increased in some Ukrainian cities, according to Ekonomichna Pravda.
All this was compounded by utility bills that were unusually high for Ukrainians. Active discussions began on social media about the rise in prices and the reasons behind it.
Experts blamed the "3200 factor" for the accelerated inflation. Fuel was added to the fire by the National Bank's revision of its inflation forecast by 1%—from 8,1% to 9,1%.
At the same time, the government and the National Bank of Ukraine (NBU) assured that everything is normal, with no deviations from the macroeconomic forecast. The acceptable range for inflation revision is 8,1% ± 2%. In January, the official inflation rate was 1,1%.
According to Prime Minister Volodymyr Groysman, curbing price growth in 2017 is the government's number one priority.
EP investigated what exactly has increased in price, why this happened, and how prices for basic goods and services will change throughout the year.
Foodstuffs
How the price has changed. According to official statistics, food and non-alcoholic beverage prices increased by 1,9%. Vegetables saw the biggest increase, by 14,9%. Prices for fruit, milk, sour cream, fermented milk products, cheese, butter, and beef also increased.
What's next? Food prices will rise. Experts predict that prices will rise faster than in 2016. In 2017, notes Elena Belan, chief economist at Dragon Capital, food price growth will accelerate to 7% year-on-year, compared to 3,3% in 2016.
"The main factors are the recovery of domestic demand, including as a result of the increase in the minimum wage, and the lack of additional supply of certain types of fruits and vegetables, which arose in 2016 due to the trade war with Russia," the expert notes.
She predicts that a good grain and other agricultural harvest will be a restraining factor on rising food prices. However, much depends on the weather.
"Another part of the inflationary processes in the domestic market is linked to improved conditions for Ukrainian businesses," says Alexey Blinov, chief economist at Alfa-Bank Ukraine.
According to him, in recent months, prices for sugar and dairy products, which had previously been relatively stable, have been rising at a faster pace in the Ukrainian food market. This is due to the improved foreign economic situation.
Expanding export opportunities and rising global prices for these commodities are changing the balance of the domestic market and leading to higher prices, the expert believes.
Travel by transport
How has the price changed?According to official data, transportation prices increased by 4,1%. Road transport contributed the most, with fares increasing by 4,5%.
This primarily concerns city and suburban minibuses. For example, in Kyiv, prices have increased to 7-8 UAH.
There are two reasons. First, the "3200 factor" played a role. Carriers followed the logic that if people earn more, they should pay more. Second, gasoline prices started to rise in January.
What's next? The fare hike is a sensitive issue for the public. It hasn't gone unnoticed by the government.
Deputy Prime Minister Pavlo Rozenko deemed the increase unjustified and instructed the Ministry of Infrastructure and local authorities to take "tough measures" against the increase in transportation tariffs.
Some carriers have reduced fares, emphasizing that this is a temporary measure. In some regions, negotiations between local authorities and carriers are ongoing.
"The cost of transportation services, if the market segment is not heavily regulated, quickly responds to rising fuel prices. Excise taxes will also contribute to higher prices," explains Irina Piontkovskaya, senior economist at the Center for Economic Strategy.
The level of competition and barriers to entry for new entrants, she said, also influence prices. "If competition is weak, with only one or two carriers, and new players finding it difficult to enter the market, then fare increases can be quite significant," Piontkovskaya concluded.
Plans
How the price has changed. In January, rates remained virtually unchanged compared to December. The biggest increase—by 2,4%—was for grounds maintenance.
The change in tariffs is even more striking when viewed year-over-year rather than month-to-month. 2016 was a year of rapid tariff increases. Specifically, electricity tariffs increased by 60%, gas tariffs by 42%, and heating tariffs by 88,4%.
What's next? There will be tariff increases, but not drastic ones. Ukrainians can expect a 25% increase in electricity prices in March 2017. "This is the last planned increase, although even after it, the tariff will not cover the costs of generating and delivering electricity," Belan notes.
She also said a slight increase in gas and heating tariffs is possible, as the price of imported gas has risen since the last sharp increase. Overall, the expert predicts that housing and utility costs will rise by only 14%, compared to a two-fold increase in 2015 and a nearly 50% increase in 2016.
Alcohol, beer, cigarettes
How the price has changed. Alcohol prices increased by 0,7% in January, while tobacco prices increased by 2,1%.
What's next? Prices for these goods will rise. The reason is the excise tax increase approved by parliament in December 2016.
"In January, prices for liquor and vodka products increased due to the rising cost of raw materials. The price of cognac increased due to the increase in excise tax rates effective January 1," says Alina Sholokhman, Executive Director of the Ukrvodka Association.
The price of alcohol will increase again on March 1st – from that date, excise tax rates on alcohol will increase by 20%.
According to the expert, companies are currently analyzing and recalculating prices. What they will be after March 1 is still unknown. "The minimum price for a 0,5-liter bottle of vodka will be 80 hryvnias," notes Sholokhman.
According to Oleksandr Kogut, Director of Corporate Affairs and Communications at JTI Ukraine, given the 40% increase in excise tax rates effective January 1, 2017, the price increase for cigarettes in 2017 should be at least 4-5 UAH per pack.
The price increase was supposed to take effect on the day excise taxes were raised, January 1st. However, according to the expert, prices are rising gradually. However, there are exceptions to this rule. In 2016, after the excise tax rate was raised by 40%, the price of cigarettes fell by 20-30% at its peak.
"It's difficult to predict how cigarette prices will develop. So far, we've seen the market move toward passing on higher excise taxes to cigarette prices," Kogut concluded.
"In January, compared to December, the average selling price of beer in Ukraine increased by 4,9%," Galina Korenkova, CEO of the Ukrpivo Association, noted in a comment to EP.
This doesn't mean the retail price has increased by the same amount. It depends on promotions organized by producers, transportation costs, and the cost of the bottle itself.
"We're particularly dependent on regional energy tariffs. Energy tariffs account for an average of 15% of the cost of a liter of beer. As soon as energy tariffs change, it's immediately reflected in the price," Korenkova noted.
In 2016, inflation in the country was 12,4%. "Considering that we increased selling prices by almost 5% in January, we won't stop at 12% in 2017," the expert concluded.
Fuel
How the price has changed. 2017 began with an increase in fuel prices: by 2,8% in January compared to December.
What's next? In the short term, prices will rise. "Since the beginning of 2017, prices have increased by 50-60 kopecks per liter. Currently, there remains potential for growth of another 0,5-1 UAH," says Serhiy Kuyun, Director of A-95 Consulting Group.
According to him, the main reason is the delayed December price increase, caused by OPEC's decision to cut oil production. This decision was made in November 2016. The wholesale market was the first to react in December, while retail prices remained unchanged.
There's another reason for the price increase. Since 2017, the 5% retail sales tax has been abolished, but the basic excise tax on petroleum products has been increased proportionally. It is now collected at the border or at production sites, whereas in 2016, it was collected at gas stations.
"For the legal part of the market, nothing has changed, other than the administration method. For the illegal part, which made up about 50% of the market, the situation has changed," the expert notes.
While illegal immigrants could previously avoid paying excise tax on retail sales, they have now lost this option, as they are forced to purchase fuel with this tax already included. Consequently, the low-cost segment has begun to rise in price, although the premium segment has not been spared.
According to Kuyun, the price of liquefied gas, whose growing popularity is due to its low price compared to gasoline, fell by 50 kopecks per liter in January due to an oversupply of the resource on the market.
In February, the price of LPG began to rise, but the attractiveness of this motor fuel will remain due to a smaller increase in the excise tax in the Tax Code compared to gasoline – 21 euros versus 42 euros per 1 liters.
Forecasting price dynamics over a long period is extremely difficult, as it is equivalent to trying to predict oil prices and, even more difficult, the hryvnia exchange rate.
"Petroleum products remain 80% imported, meaning their price depends on the exchange rate. In addition to the foreign currency pegged customs value of fuel, excise taxes are denominated in foreign currency. Overall, the foreign currency component of gasoline and diesel fuel reaches 85% of the price of petroleum products at gas stations," the expert concluded.
Shoes and clothing
How the price has changed. Clothing prices fell by 4,4%, footwear by 4,1%.
What's next? The January decline in clothing prices was seasonal. Prices depend, among other things, on the dollar exchange rate, which affects the cost of finished imported goods and sewing accessories.
Prices will fluctuate depending on seasonal sales and the appearance of new collections in retail chains.
Subscribe to our channels on Telegram, Facebook , Twitter , VK - Only new faces from the SKLEP section!