Inflation curbed too late
The November decrease in the price of non-food consumer goods (0.2 percent) and the moderate increase in food prices (0.6 percent) and services (6.5 percent) led to a decrease in inflation in November to 1.8 percent compared to 2.6 percent in October. The government’s efforts, which are aimed at curbing the inflation rate through the spread of the tendency of lowering oil prices to all other goods, in the production or transportation of which oil products are used, have led to certain results. However, this year’s inflation rate is considerably higher than the same period last year: 1.2 percent last November and 9.4 percent for the period January-November 2005.
Price peaks leveled off only for non-food consumer goods, although the government was staking on foodstuffs. According to a memorandum signed on Nov. 9 between the government and professional branch unions of the agro-industrial complex of Ukraine, bread prices should have decreased by 2.5 percent. However, such changes took place only in four regions, without making any impact on the general picture because they either remained the same or continued to rise in other regions. Poultry prices dropped by 2.8 percent, although the memorandum predicted a price drop of 10 percent. Sugar has also become cheaper in all regions (between 3.6 and 13.9 percent).
It looks as though the government has begun to combat inflation somewhat tardily. This is the main factor behind the significant increase in the inflation rate. According to the State Committee of Statistics, the inflation rate for January-November 2006 was 10.6 percent, exceeding last year’s by 0.3 percent. Thus, the optimal limit that may be regarded as acceptable for the summary of the 12-month period has been exceeded. In the past 11 months the cost of food rose by 2.7 percent and non-food goods, by 46.2 percent. Without a doubt, this year the rising cost of services, which were constantly triggered by the talk of gas prices, became the engine of this year’s inflation, particularly in September and October, when these costs pushed it to 2 and 2.6 percent, respectively. As a result, inflation has reached 8.7 percent according to the 10-month summary (while the government prognosis for the year was approximately 9 percent.)
So-called re-inflation, which is created as a result of the transfer of inflation in the sphere of energy carriers and raw materials to the production of industrial and other types of enterprises, played a crucial role in the inflation race this year. Suffice it to say that the price of industrial goods rose 13.5 percent in the January-November period, and the reasonably good November index (0.7 percent) was not able to save the situation. Special problems emerged in connection with the price increase in the sphere of the production and distribution of electrical energy, gas, and water (22.3 percent increase) The government has clearly lost the fight against inflation this year. Already in mid-November First Deputy Prime Minister and Minister of Finances Mykola Azarov predicted that inflation in Ukraine might reach nearly 3.5 percent in November- December 2006. After one year it should exceed 12 percent, Azarov believes.
“I hope that the main peak of inflation is over,” the first deputy prime minister said, adding: “We have switched to the new tariffs by 70 percent. We will have 3.5 in November-December. No such increases are expected next year. We have all the possibilities to reach 7.5 percent if there are no unexpected decisions,” Azarov said. He emphasized that the government and the National Bank of Ukraine are carrying out a coordinated anti-inflation policy. “We have no intentions of increasing inflation by any means. On the contrary, we will keep it within limits,” the finance minister promised.
A question arises. Why was this framework punched full of holes this year? I think the government was caught napping during the inflation processes, and when it woke up in October, it realized that the situation might not be solved.
There is another aspect here. The government is mainly responsible for filling the budget. Since the GDP’s growth rate as well as the total failure of the privatization process did not provide complete assurance that wages and pensions will be paid, until a certain period of time the government was looking through its fingers at the inflation tax, one of the significant sources of filling the budget.
It is no accident that the Ministry of Economy is still abiding by the prognosticated inflation increase at the 10-percent level. It will be much easier to defend the prognosticated situation next year, when the government’s inflation obligations will be tougher — up to 7.5 percent. Something is being doing in this connection.
Ukrtelekom and the Odesa Port Plant, finally taken out of the untouchable reserves, may be slated for privatization. The Day’s experts admit that using a non-renewable resource — privatization — is not the best way to fill the budget, but large international loans are a worse one. Thus, the right choice has been made. It will curb inflation tendencies next year, which will not be an easy one.
