What one can say about the scale of price threats?

Today not just average Ukrainians are surprised by current prices but some officials as well. As the cost of gas, electricity, oil, public utilities, and railway transport rises, statistics are flooding the country with reports on deflation, i.e., the general price decrease on the most used goods and services. This is no distortion. In fact, a certain period of time passes between the passage of resolutions on price and tariff increases, and their implementation. So are we still facing difficulties? And what will be their scale?

Yaroslav ZHALILO, head of the Economic and Social Strategy Department, National Institute of Strategic Research:

I think that Ukraine is not threatened by hyperinflation, if we understood this term as meaning the phenomenon that took place in the early 1990’s. We already have a rather clear-cut monetary system of restraint and compensation, and so on. To my mind we have to expect quite a high inflation index (10-12 percent) which will be connected with the need to adapt the economy and increase several cost-driving factors, such as increases in energy resource and transport tariffs.

Then we have to expect a decrease in the inflation level to more acceptable indices. But it is a fact that the Ukrainian economy will remain in the state of a “transformer” for a long time. A 6-7 percent level of inflation a year is our prospect for the next six to seven years. And talking about switching to European standards (2-3 percent inflation) is just a dream. The new government will not be able to influence inflation processes significantly, because for the most part the National Bank is the regulator of these processes.

However, if the new government program is again based on populism, then we can expect that a model aimed at a sharp decrease in the inflation level will be chosen, which will cause a deceleration of economic progress. But if a more pragmatic and liberal government is formed, then tasks of economic growth as a means of realizing social tasks will be established. Then, I believe, the economical system will be more flexible and the inflation rate will be higher. It will influence the everyday life of citizens and help to avoid serious fluctuations.

Eric NEIMAN, head of the Financial Instruments Department, Ukrsotsbank:

I don’t see any causes for high inflation except an increase in prices for gas and electricity, especially if you take into account the fact that the cost of utilities is a very small part of family budgets. Inflation will surely grow but not significantly. I think we have to expect an increase in the level of inflation by one percent a year.

Another lever for curbing inflation is deceleration of the economic development rate and competition, which is growing. Politicians will not push the inflation process either. It’s a long time until the next election, and there is no sense or benefit for them to pass populist decisions like the ones that were made a couple of years ago. There will be no rapid growth of social payments in the next years, and more attention will be paid to the real economy. This will surely have an impact on people’s incomes and will have a positive influence on the general economic state of the country.

Liudmyla KYRYCHENKO, Ukrainian MP:

I believe that under the current conditions price increases may lead to hyperinflation. Production rates are falling drastically at the moment, and this is definitely boosting the threat of looming hyperinflation. The Cabinet of Ministers is implementing an absolutely unwise policy of increasing tax rates and promoting an insufficiently considered policy in the gas sphere, and other branches of the economy. I don’t forecast anything fundamentally new in the Ukrainian economy until an “Orange” coalition is established.

One should expect a worsening situation on all levels, as those who are in power today and those who want to rule (I mean “the Orange” people) are not taking any steps to improve the current economic situation. However, if the prime minister will not be from the “Orange” camp, then one person in the field means nothing. One person will not be able to do anything. The whole team has to be changed. I predict that the “Orange” coalition will rule for some time. Later, people’s moods will reach the boiling point and then it will not be possible to avoid a wave of mass dissatisfaction. And in order to hang on to his position, the president will change his mind.

Eugene HRYHORENKO, general director, Ukrainian Association for Investment Business:

Inflation and even hyperinflation can be created in any country. Inflation in our country will obviously continue. But undoubtedly there will be no hyperinflation (measured in hundreds of percent). Today everybody is talking about the possible risks connected with inflation, all the more so as we are using undiversified oil products and other imported energy resources. The worst thing that could happen is that we will run into world market prices. But this will not lead to hyperinflation. Moreover, our exchange operations have reached 17 billion dollars, i.e., we are adequately protected even here. Fortunately, we don’t have a political crisis that would threaten us with hyperinflation as well. Is there any factor that would lead to it? Without a doubt, there is no such factor. I allow inflation of 10-20 percent. But that will only happen if the government will not be a wise manager and if it conducts the same unwise policy regarding countries that can influence our economy.

Viacheslav BUTKO, Economic Programs Manager, Center for Research on Corporate Relations:

I doubt inflation can rise to 40%. An increase in gas prices will somewhat influence the prices of products made in Ukraine. It will definitely lead to a decrease of Ukrainian producers’ competitiveness both on external and internal markets, which will result in a decrease in the market volume of our products. This will reduce exports and increase imports, and will negatively influence the trade and payment balance. This in turn may cause additional pressure on the national currency and lead to some devaluation. The final version of this chain would be a reduction in industrial production and a further decrease of the GDP growth rate or its general drop.