The Cabinet of Ministers is trying to tame inflation by reviewing the make-up of the consumer basket

The Cabinet of Ministers is trying to tame inflation by reviewing the make-up of the consumer basket
Ukrainians were offered to reduce meat consumption and eat more vegetables
Photo: Unian

The State Statistics Service reviewed Ukraine’s consumer basket used as a yardstick for calculating inflation. On average, the prices of consumer goods increased by 5.8% in the first half of 2014 compared to January-June 2013. Based on the estimates of the new governor of the National Bank of Ukraine Valeria Hontareva, the rise in consumer prices at the end of the this year compared to December 2013 could reach 17-19% due to devaluation of the national currency and the increase in regulated tariffs. However, the recalculation of the consumer basket will help officials to somewhat reduce these indicators on paper.

Housing utility services suffered from the main changes in the consumer basket – compared to July 5, 2013 the share of this indicator fell from 11.45% to 11.07% as of July 7, 2014. Specifically, according to the estimates of the State Statistics Service, Ukrainians paid less for gas (from 2.17% to 2.05%) and electricity (from 1.57% to 1.54%). Noteworthy is that this happened on the backdrop of a hike in utility tariffs.

Over the first three months of its work the new Cabinet of Ministers raised the rates of utility services twice. As of May 1, the price of gas for households was raised 1.5 times from UAH 720.54/cu m to UAH 1,089. As of June 1, the National Energy Regulatory Commission hiked electricity rates for households by 10-40% depending on the volume of consumption. As a result, over the first half of 2014 relative to the corresponding period in 2013 utility services were raised by 5.4% and in June as compared to December 2013 – by 15.8%. The cost of natural gas for households grew 62.8% and electricity – 11.3%. July should be the key month of the year in terms of the increase in utility rates. From July 1 the rates of water and heating services were considerably raised. For example, in Kyiv the rate for centralized water supply and overflow increased by more than 2.3 times (to UAH 7.46 per cu m) and for hot water supply – by 58-69% (UAH 23.48-25.10 per cu m). Also, as of July a new rate of UAH 375.30/Gcal, which is 48-58% higher than the previous rate of UAH 237.70-253.15/Gcal, was set for the central heating supply depending on the term of payment.

According to the estimates of Head of the Analytical Division of Alfa-Bank Ukraine Oleksiy Blinov, due to this fact the rise in utility rates will increase from 16% in June to more than 30% in July. In the mean time, the State Statistics Service also reduced the share of these services in the consumer basket through planned hikes. So, the share of water supply and outflow decreased from 0.97% to 0.96%, hot water – from 0.37% to 0.36% and heating – from 1.91% to 1.78%.

Such a paradoxical review of the share of utility services can be explained by the fact that it factored in data of the previous year, says Senior Analyst at the International Center for Policy Studies Oleksandr Zholud. In 2013, expenses for residential utility services increased by a mere 0.3% due to the 2.9% hike in the fees for apartment services. At the same time, the size of the consumer basket increased – the average monthly wage in Ukraine grew 7.9% to UAH 3,265. That means the share of expenses for other goods increased and for utility services decreased. “I do not believe the review of the consumer basket with a lower share of utility services is an attempt to understate the level of inflation,” Zholud concluded. By the way, the review of the share of utility services that at first glance appears insignificant, in practice could slightly understate the inflation indicator based on annual results, which does lip service to the government.

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