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| PHÎÒÎ: PHL |
Astrum Investment Management analyst Oleksiy Blinov says it would not be correct to speak about deflation, as inflation has basically frozen at the zero point. “This year, the inflation has an impact on only a few commodity groups: dairy products, eggs, sugar and vegetables. In Q1, the prices of these products inched up. In Q2, they began to fall. We are not talking about deflation, but changes in prices in several seasonal groups of goods that make up a higher share in the overall consumer basket and strongly affect the consumer price index . The inflation indicator has not budged for six months. Only minimal fluctuations within 0.1% range have been observed,” Blinov believes
Market analysts attribute the standstill in prices mainly to a decrease in inflation expectations. Expert at CASE Ukraine Olha Kravets says this phenomenon was mainly due to stabilization of the exchange rate of the hryvnia.
As a rule, deflation is accompanied by a recession. The decrease in people’s incomes observed over this period precipitated a drop in consumer demand and, accordingly, prices gradually start to fall.
It was the devaluation of the hryvnia that precluded deflation trends last year. However, as the International Center for Policy Studies reported, inflation expectations increased by 10.5 points to 173.6 (in April, this indicator was 163.1, the lowest in the past 18 months). Despite this, prices remained stable.
Economists say that in recent months the postponed demand factor played a key role in maintaining the stability of prices. In other words, Ukrainians began putting away more money for a rainy day.
Last year’s economic recession forced many people to be budget conscious in terms of expenses, particularly since the most thriftless people squandered a good share of their savings in 2009. Moreover, most Ukrainians cannot imagine living without savings – 68% of the population considers savings important. In the pre-crisis period, the average level of savings was only 9.2% of their income. In Q1 2010, Ukrainians put aside 11% of their incomes for a rainy day.
The fear of uncertainty and the desire to turn a small profit facilitated this situation. The cutback in lending and the prospects for its quicker revival forced Ukrainians to “stash their cash”.
Despite this, economists predicted a quick recovery of consumer lending (the most popular and short-term). Only three banks of the 50 largest banks are today offering loans for the purchase of consumer goods. Even so, real annual interest rates are as high as 90%, which makes consumer loans more of an exception to the rule.
Nonetheless, after last year’s decline of nearly 33% the home appliances and electronics markets are showing impressive growth. According to GfK Ukraine, the total volume of home appliances and electronics market totaled UAH 7.18 bn in Q1 2010, which is 22.2% higher than in the same period in 2009. Ukrainian consumers apparently learned to purchase goods without relying on bank loans. In addition to that, the rather high interest rates on deposits forced some people to cut back on spending and earn interest for the future to increase their savings by 20-25% within a year. As a result, the NBU says the volume of bank deposits of individuals grew in the first half of the year by 13.7% to UAH 250.5 bn. This means that since the beginning of 2010, Ukrainians put aside UAH 23.43 bn for that rainy day.
There is one more factor in this picture. A certain segment of consumers realized that living on less money today to hide it away for the future is possible. Opinion polls show that in 2007-2008, the real subsistence level of Ukrainians was estimated at UAH 1,500 – UAH 1,600, while today it is UAH 1,400 – UAH 1,500 (in regional oblast centers), notwithstanding two years of inflation and the weakening of the hryvnia. The estimation indicator of the subsistence level essentially began to correspond to average wages throughout the country. This figure was UAH 2,058 in May for a family of three, where one of its members is unable to work. Two years ago, the subjective estimate of the subsistence level was calculated on the basis of higher than average incomes.
Market analysts are convinced that as early as this fall, Ukrainian consumers will see a considerable rise in prices. The increased thriftiness of Ukrainians will not be able to ward off inflation. “This is a good restrictive factor. In Ukraine, however, there was never an acute difference between incomes and expenses. Unlike in a number of Asian countries, Ukrainians spent the lion’s share of their salaries immediately. For this reason, one should not expect a decrease in inflation (by 5% and more) from an increase in savings,” assures Blinov.
Indeed, Ukrainians spend around 66% of their incomes on groceries and another 10% on necessity goods. In other words, they do not have the financial wherewithal to increase their savings.
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