Ukraine’s consumer inflation stood at 0.3% month on month in May (mostly driven by food, alcohol and tobacco prices) vs. 0.8% m/m in April, according to the nation's the state statistics service, Ukrstat.

The agency reported inflation at 1.7% year on year in May vs. 2.1% y/y in the prior month.

Falling inflation clears the way for more rate cuts by the NBU later this month.

Food prices rose 1.2% m/m in May (after climbing 2.1% m/m in April). In particular, prices jumped for fruits (15.8% m/m), eggs (16.6% m/m) and bread (0.7% m/m). In addition, prices for alcohol and tobacco climbed 1.1% m/m. At the same time, prices for meat declined 1.6% m/m, while prices for sugar slid 0.8% m/m.

Meanwhile, prices for clothing and footwear declined 1.4% m/m (after increasing 0.4% m/m in April). Prices for housing and utilities continued to decline, losing 2.8% m/m (vs. a 3.2% m/m decline in April) mostly due to a plunge in natural gas prices of 16.8% m/m.

In addition, prices for transportation fell 2.0% m/m, which was driven by sliding prices for fuel and lubricants that lowered prices for rail transportation.

Evgeniya Akhtyrko at Kyiv-based brokerage Concorde Capital believes that declining global energy prices helped to cool Ukraine’s consumer inflation, particularly in housing and transportation.

"The drop in prices for clothing and footwear was likely the result of sluggish consumer demand, as well as a 1.5% monthly hryvnia appreciation, which affected the pricing of imported items," she wrote in a note on June 10. "Meanwhile, the inflation of food prices remains relatively high, mostly as a result of seasonal spikes for some items." Concorde expects consumer inflation will accelerate to 6% YTD in 2020 (vs. 4.1% YTD in 2019). However, this estimate might be too high, as an expected increase in the budget deficit will not result in a significant money injection into the consumer market.