Rampant Inflation Haunts Ukraine

LONDON, UK -- Europe continues to suffer from increased inflation, but Ukraine is a story all its own as it gets strangled by record price increases. Ukrainian presidential aide Oleksandr Shlapak said inflation in the country would hit 20.0% in 2008, according to TradeTheNews.

Ukrainian presidential aide Oleksandr Shlapak.
This would normally be very alarming news for countries like Austria and Britain, that enjoy some of the lowest inflation levels (3.2% and 2.9%), but not for Ukraine; in May alone it reported inflation levels of 30.0%.

Indeed, Shlapak's statement is actually good news Ralf Wiegert, senior economist at Global Insight in Frankfurt, told Forbes.com.

"Sky-rocketing food prices last year contributed to levels of inflation that have reached nearly 33.0% in Ukraine," Wiegert said.

Inflation in Ukraine went from 11.0% in May last year to 31.0% in May in 2008, according to the state statistics office. Now inflation is expected to go back to 22.0% before hitting a low of 10.0% by the end of next year, according to economic estimates.

Wiegert says officials generally attribute the inflation problems to the global food crisis, but the Ukraine itself is also to blame.

"The government is ruled by members of the former Soviet era. They offer very little incentive to producers in a highly regulated market, creating an environment with high demand and very little supply," Wiegert added.

Food and beverage prices rose by 40.7% year on year in March, health and education costs each grew by more than 17% and restaurant and hotel charges increased by 25.2%, official figures show.

Although inflation is a problem worldwide, with Europe expecting inflation levels above 4.0%, Ukraine's problem is exacerbated by a particularly poor harvest last year.

The good news, Wiegert said, is that an expected good summer harvest in 2008, will help to the decline of food prices and the country will have some breathing space again. At least, that is, until the next inflation hike.

Source: Forbes