“Inflation is not far off”: the NBU explained why the minimum wage will come out sideways

The regulator pointed to the risk of economically unjustified increase of social expenditures.

The national Bank of Ukraine called for increasing government salaries and social benefits in connection with the approach of parliamentary and presidential elections one of the greatest risks of failure to meet the inflation target in 2018.

This is stated in the Board’s proposals for the development of the main principles of monetary policy for the year 2018.

“The increase in orientation of the Ukrainian government to Finance current expenses of a social orientation may lead not only to inflation but also to limit public investment growth and debt burden, negatively affect medium-term economic growth,” the document reads.

It is noted that the most significant uncertainty factor is the development of the situation in the East of Ukraine.

“In the case of Ukraine is favorable for the development of the situation reducing the risk premium will increase the investment attractiveness, contributing to capital inflows, economic growth and predetermining revalvatsionnye pressure on the hryvnia,” – said in the message.

Among other major risks to inflation and economic growth in 2018, the national Bank calls the slow implementation of reforms.

“Key political risks to macroeconomic stability is the slow implementation of reforms envisaged by the General programme with the IMF, and delays or termination of relying on official financing,” the document says.

The economic consequences of such a development worsen due to the proximity of peak payments on public and quasi-public debt in 2018 or 2019, adds the regulator.

According to the document, the uncertainty for the inflation development is also associated with administrative regulated tariffs, in particular, of energy that may in the short term to reject the path of inflation in both directions.

As reported, the national Bank aims to reduce inflation from 12.2% in 2016 to 8%+/-2% in 2017, 6%+/-2% in 2018, 5%+/-1% in 2019.

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