Is there any reason to expect slower inflation?

The International Monetary Fund (IMF) expects this year’s inflation in Ukraine to be under 10 percent. Interfaks-Ukraina reported that this was the statement that Max Alier, IMF Resident Representative in Ukraine, made recently at the Investments Forum in Kyiv. He noted that the annual inflation in Ukraine went down to 11 percent in January and will keep within single digits. According to Alier’s words, this is a preliminary prognosis by the IMF, while the final one will be announced later.

The reader will remember that the Presidential Secretariat of Ukraine made a prognosis that after 2010 the increase of consumer prices will be 12.5 percent and that of the prices set by manufacturers will be 14 percent.

Meanwhile, Oleh Soskin, director of the Society Transformation Institute, believes that this year the inflation in the country will be at the level of 25 percent. InterMedia Consulting informs that the expert sees the reason for price increase also in the desire of the National Bank to withdraw from circulation coins with the nominal value of one and two kopecks. In Soskin’s opinion, this betrays a deliberate stimulation of inflation. The expert stressed: “There is no need to withdraw one- and two-kopeck coins. Every country has those. It will lead to the rounding up of the prices. Nobody rounds them down. It means if the price was, for example, 34 kopecks they will make it at least 35 and 50 at the most, so that it would be possible to pay with one coin. There is no country where these coins are being withdrawn; they are very cheap. They should be a signal for people that there is a totally stable monetary system in the country, including the situation with coins.”

However, Soskin sees the main reason for inflation in the devaluation of the national currency. The expert says that today we can speak of 60-percent devaluation. “This devaluation will by all means result in inflation. We can already see how the purchasing power is going down in the country, which, in its turn, leads to an increase in consumer inflation. This way, if the hryvnia’s purchasing power will not be reestablished at a rate of one dollar for seven hryvnias, the inflation at the retail market will be at least 25 percent,” thinks Soskin. He also says that this is still quite a positive prognosis.

What would be a pessimistic prognosis then? And who will benefit from which? In the opinion of Viacheslav Kredisov, chairman of the board of NGO “Nova Formatsia,” and member of the Council of Entrepreneurs attached to the Cabinet of Ministers of Ukraine, high inflation is “beneficial for the state, which has a right to print money; for banks, which in this case begin to use their money much faster; and also for trade monopolies, which at some point raised their prices and are now selling their products at excessive price as fast as possible.”

At the same time, Kredisov says that inflation will hit citizens whose savings will lose their value in a short period of time. He also says that inflation is not beneficial for the acting government, the president, and, of course, Ukrainian business. “How can you bring in products if you don’t know what the [exchange] rate will be? How can you assemble something when you don’t understand what will be the demand for your product? Business is now in the mode of expecting the authorities to come up with political and legal mechanisms that would influence the situation so that the risks will be minimized,” said Kredisov.

It is difficult for experts to say now whether business and citizens will see any of those mechanisms. “There is the so-called political game here,” says Kredisov. “In this case everyone is afraid to take the responsibility even though everyone understands that this should happen. It means that there will be money printing, it can’t be avoided. The question is who will take the responsibility and when will it happen? My personal prognosis is that we will get a feeling of it in the next three months.”

What exactly we will feel depends on a number of external and internal factors. Anton Filipenko, Ph.D. in Economic Science and president of the Ukrainian Association of International Economists, emphasized in his conversation with The Day that among those factors are prices for gas and other energy products. He said: “The important thing is to model these processes. There have to be good economic and mathematical, econometrical models that will show optimistic, pessimistic, and neutral scenarios. Then we can start talking about possible leverage.” In Filipenko’s opinion, one of such leverages should be a policy of import substitution. The expert noted that if we made an emphasis on domestic production, the inflation processes could at least be kept in check.

What concerns the estimate of the scale of those processes, Filipenko is inclined to agree with the IMF prognosis. He summed up: “The Fund uses world’s standard positions which take place after crises and depressions. Its logic is totally correct as it also takes into account the world’s processes.”