Social innovations will entail a rapid growth of inflation.
The national Bank reports that the increase from 2017 the minimum wage (MW) added 2-2,5 percentage points to inflation this year, while the increase of pensions since October, will add about 0.3-0.6 p. p. About it reported in a press-service of the NBU.
In January, the national Bank has worsened the inflation forecast from 8% to 9.1% due to the increase of minimum wage to 3 200 hryvnia.
The national Bank noted that wage growth had a 2 times greater pressure on inflation than expected.
“According to our final estimates, doubling the minimum wage added about 2-2,5 percentage points to inflation in 2017. The most noticeable effect of increasing the minimum wage took place due to the increase in the cost of services. This is because in fact the employers did not raise the “real” wage, how many take them out of the shadows. At the same time the effect of doubling the minimum wage was insignificant for inflation with the consumer demand. However, in General, high growth of wages (according to the latest data, in August the growth of average nominal wages in annual terms amounted to 37%, actual – 17%), which occurred mainly because of the shortage of adequate labour market and social transfers on the back of improved consumer sentiment of the population contributed to the acceleration in private consumption,” – said the NBU.
In addition, the pension reform will stimulate private consumption and generate additional inflationary pressure.
The national Bank believes that this effect will be minor because the effects on the budget from increased spending on pensions will be offset by other items (the budget deficit remains less than 2.5% of GDP in 2017 and 2018).
“While the corresponding increase in average pensions account for the IV quarter of 2017, the expected increase in consumer demand as a consequence will have an effect in 2018. According to the NBU, the increase in pensions will lead to moderate pressure on consumer prices (optional 0.3-0.6 PPT to consumer inflation year in 2018),” commented the Central Bank.
The NBU did not specify how much pressure will have an increase in the minimum wage from 2018 to 3 723 UAH on inflation, noting that the new inflation forecast (7.3 percent) already addresses this indicator.
“However, we are considering the increase of social standards in the complex. In particular, we take into account the increase of pensions. However, in case of increase of social standards with a pace that is not consistent with productivity growth, there may be additional inflation risks. This will require the NBU to conduct a tougher monetary policy for achieving the inflation target,” added the national Bank.
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