The headline CPI inflation at 8.9% y/y in September, almost unchanged from the two previous months, was higher than projected in July (8.3%), the central bank (NBU) has said in its monthly inflation commentary. The NBU recalled that the target range for end-Q3’18 had been set at 4.5%-8.5%. Core inflation at 8.7% was also higher than expected in September. In spite of food price disinflation, upward pressure on prices remains high because of strong domestic demand, rapidly growing wages, and growing oil prices, said the NBU. We recall that real wage growth accelerated to 15.7% y/y in August.
A new inflation forecast will be announced after the rate-setting meeting on Oct 25, said the NBU. Thus far the NBU has been expecting that inflation will slow down to 8.9% y/y by end-2018. The World Bank recently forecast that CPI inflation will reach 9.9% at end-2018. We think the NBU’s next rate decision will depend on the outcome of the continuing talks with the IMF. If the government agrees to significantly increase domestic gas prices already this year, which is unlikely in our view, the NBU might again hike its already high key policy rate. The NBU last time did so in early September, by 50bps to 18.0%.