Ukraine unofficially has 272 percent inflation - The Washington Post

Hyperinflation is always and everywhere a political phenomenon.

It happens after wars or revolutions, when governments have to print the money they need because there's not much of an economy left to tax—which brings us to Ukraine. It had a revolution, it has a war now, and it's all but broke. Inflation is officially 28.5 percent, but, according to Johns Hopkins professor Steve Hanke, it's really more like 272 percent. And that's only going to get worse as long as Ukraine's currency does.

It's hard to overstate how challenged Ukraine is. Its economy has actually shrunk since communism ended in 1991. Or since 1992. Or even 1993. That's because communism never really did end. Ukraine just traded party bosses for oligarchs. Sure, it privatized companies and introduced markets, but Ukraine didn't shed its Soviet-era corruption or inefficiency. There was barely any rule of law, tax rates had to be jacked up to make up for all the wink-wink, nod-nod tax evasion, and, as a result, even more of the economy entered the shadows. The IMF estimates that Ukraine's underground—and non-tax-paying—economy is as much as 50 percent of GDP.

Now Ukraine's not-so-cold war with Russia is destroying the little that's left. It's not just that Ukraine has lost the factories in the rebel-held east that make up a quarter of its industrial capacity. It's that it can't afford to fight a war against what is still its biggest trading partner—Russia. The only way for Ukraine to pay its bills is to dip into its reserves. But those have dwindled down to $6.42 billion, only enough for a little more than a month of imports. (Three months worth is considered the absolute least you can get by with). So Ukraine has done what all countries do when they've run out of money: go to the IMF. It's announced a $17.5 billion bailout in return for tough reforms, including cutting energy subsidies for households. But even that won't be enough to stop Ukraine from defaulting on its debt—or, if you're feeling more polite, restructuring its bonds. Those have already fallen to less than 50 cents on the dollar in anticipation of the nonpayment to come.

In short, Ukraine doesn't have any foreign currency and doesn't have the ability to earn any more. And that means there's nothing left to support the value of its currency, the hryvnia—so it doesn't have much anymore. Ukraine had been pegging it at 8 per dollar before the war began, but was then forced to let it slide down to 16 per dollar, where it tried to re-peg the hryvnia. This failed. Ukraine didn't have the dollars to prop up its currency for very long, and when it belatedly admitted this, the hryvnia collapsed. Then it collapsed some more after the latest peace deal fell apart. So Ukraine's central bank has done the only thing it could do: everything. It made its capital controls even stricter, banned currency trading, then reversed the ban on currency trading but begun intervening directly. It's worked a little. Well, at least the hryvnia has rebounded from a low of 33.5 to now 27.2 per dollar. But that, as you can see above, is still a 70 percent fall from the start of 2014.

Complete story at - Ukraine unofficially has 272 percent inflation - The Washington Post

Ukrainian Households Face 264% Spike in Utilities Rates on Gas / Sputnik International

Amid an uneasy ceasefire, a spiraling currency, pension cuts, the re-introduction of the military draft, and faltering public services, now ordinary Ukrainians are likely to see their utility costs skyrocket.

IMF officials and the Ukrainian government have been negotiating proposals that would substantially raise gas and heating tariffs for Ukrainian households, as part of the IMF's agreement to provide Ukraine with a new $17.5 billion rescue plan. The plan is conditioned on Ukraine making a number of changes to its national budget, in areas including price subsidies, pensions, tariffs, and the tax code.
"The package of documents includes not only amendments to the 2015 state budget, but also a change in tax laws. It also includes an increase in gas tariffs by 264 percent and an increase of 64 percent on tariffs for heating," a National Bank of Ukraine official participating in the IMF-NBU meeting told the Ukrainian newspaper Vesti. The official added that the NBU "has little doubt that the MPs will vote for the necessary package of measures."

According to Alexandr Klimenko, the former Minister of Revenue and Duties, the proposed changes, which will be voted on at a special session of the Verkhovna Rada on February 25, leaves little money to assist ordinary Ukrainians in coping with the rising rates. "For those counting on subsidies, let's use simple arithmetic: Subsidies to Naftogaz in 2014 comprised about 100 billion hryvnia ($3.8 billion US); in 2015, they will be reduced to 30 billion hryvnia ($1.15 billion); the difference will be covered by an increase in tariffs. At the same time, subsidies for low-income families in 2015 will amount to only 12.5 billion hryvnia ($479 million). The difference in the amount of 57.5 billion hrynvia ($2.2 billion) will theoretically now be covered out of the pockets of Ukrainians."

Complete story at - Ukrainian Households Face 264% Spike in Utilities Rates on Gas / Sputnik International

National Bank of Ukraine's plan: More inflation

Ukraine plans to inflate its way out of economic troubles. Like nothing can go wrong there...

Ukraine plans to inflate its way out of economic troubles. As National Bank Governor Valeriya Gontareva said on Jan. 16, the monetary base will increase by 27 percent this year.

This means turning on the money printing press.

As inflation almost reached 25 percent last year, more cash in the system brings another risk that the hryvnia, Ukraine's heavily devalued currency, will keep losing its value. The National Bank expects this year's inflation to exceed 17 percent.

Ukraine has a pitiful track record of tackling inflation. Hyperinflation destroyed the kupon, a currency that country had in 1992-1996, prior to introducing the hryvnia.

Lack of understanding of the macroeconomic issues by the members of parliament that they showed during Gontareva's Jan. 16 visit to the Verkhovna Rada has become the subject to jokes of financial analysts. Executing the money printing policy in a country whose parliament tends to be populist when it comes to serious financial discussion is questionable.

"Yes, emission (printing the money) should take place," said First Deputy Finance Minister Igor Umansky in an interview with LB website. "But money should come to the economy not through banks, but through the state budget."

Complete story at - National Bank of Ukraine's plan: More inflation

Medicine and Meat Out of Reach Amid Ukrainian Price Shock | Johnson's Russia List

(Bloomberg – bloomberg.com – Daryna Krasnolutska – November 20, 2014) Valentyna is thankful for the two pensions she and her husband share, even if Ukraine’s inflation shock means they’re no longer enough to buy medicine and meat.

“We have some potatoes, tomatoes and cucumbers from our dacha,” said the 72-year-old pensioner as she made her way through the city of Zhytomyr, a two-hour bus ride west of Kiev. “I can’t imagine how people survive on a single pension. We can’t even go to the drug store. We try to use herbs instead.”

>From Lviv, near the Polish border, to Kharkiv, 1,000 kilometers (650 miles) east in Russia’s shadow, Ukrainians are grappling with the world’s worst-performing currency, inflation that’s rocketed to 20 percent and the deepest recession in five years. The plight of Zhytomyr’s 270,000 residents shows how bailout-mandated austerity and the strains of an eight-month insurgency are playing out in everyday life.

Across the street from the city’s Soviet-era department store, the central open-air market sells food, clothes and toys. Traders huddle next to signs offering to buy pumpkin seeds, nuts, rabbit pelts, feathers and beans from producers who’ve traveled from nearby villages.

Locals are cutting back because of this year’s 48 percent plunge in the hryvnia, a decline that’s eroded purchasing power. The inflation rate spiked to 19.8 percent last month as the currency’s slide boosted the costs of imported goods from gasoline to fruit.

Complete story at - Medicine and Meat Out of Reach Amid Ukrainian Price Shock | Johnson's Russia List

Ukraine's hryvnia slides to a new low of UAH16.05 to the dollar | Business New Europe

How LOW can it go?

Ukraine's hryvnia slid to a new historical low of UAH16.05 to the dollar at the close of November 12 on the interbank market. This marks a 50% devaluation on the UAH8 to the dollar exchange rate propped up by former president Viktor Yanukovych from 2010 through to his ousting in February 2014 - at the expense of the nation's hard currency reserves.

On November the National Bank of Ukraine reacted by deciding to raise the discount rate from 12.5% to 14.0%, partly to prop up the forex market. According to Valeriya Gontareva, head of National Bank of Ukraine (NBU), the central bank intends to fully switch to flexible exchange rate policy and inflation targeting.

Today's crossing of the psychological UAH16 to the dollar mark will not be the end of the descent, top NBU officials warned. "A balanced hryvnia exchange rate will come into being when the currency stops devalution," Serhiy Ponamerenko, the NBU's head of currency operations told newswires on November 13.

"Unfortunately, it is impossible to judge where the slide of the hrvynia might stop," says Dmitry Boyarchuk, executive director of thinktank CASE Ukraine. "If you look at the fundamentals, then there is no need for further weakening of the hryvnia. The problem is that the country has lost confidence in the leadership of the NBU, and in fact we see vicious circle of devaluation," Boyarchuk told Liga.net portal.

With the currency in free fall, and the security situation unstable, the price of Ukrainian debt also plummeted to new lows for the year.

The hryvnia started to slide immediately after the ousting of Yanukovych, and accelerated as Russia proceeded to annex Ukraine's Crimea peninsula and Russian-backed insurgents seized control of Ukraine's eastern Donbass region, provoking war. Now the hryvnia is the world's worst performing currency in 2014.

Complete story at - Ukraine's hryvnia slides to a new low of UAH16.05 to the dollar | Business New Europe

Russian news: Ukraine on Verge of Social, Economic Collapse as Reality Sinks In - Russia Insider

Ukrainian President Petro Poroshenko recently visited Washington, determined to put a new, more confident face on his beleaguered country. He made an emotional speech at both houses of the U.S. Congress and met with President Barack Obama.

In the end, he left with neither arms nor serious financial aid. Little wonder, then, that back home, Kievans are frustrated and anxious. Facing increasing economic hardship, they have little hope that things will get better.

Things couldn’t get much worse. Ninety-three percent of Ukrainians say that the economy is in bad shape, and they are right. The IMF forecasts a 15 to 20 percent decline in Ukraine’s GDP this year, and Kiev may need an additional $19 billion from the fund just to keep the government afloat.

Meanwhile, the hryvnia is in free fall. The devaluation, and a run on deposits (Ukrainians have withdrawn around 101 billion hryvnia since the beginning of the year), recently led to the collapse of 17 of Ukraine’s 180 banks. Fifteen more are close to default.

Alarmingly for average Ukrainians, electricity prices are expected to increase by 10 to 40 percent over the next year and gas for heat by 50 percent.

Complete story at - Russian news: Ukraine on Verge of Social, Economic Collapse as Reality Sinks In - Russia Insider

Ukraine hikes key rate to highest level in decade - Yahoo News

Kiev (AFP) - Ukraine's central bank announced plans Wednesday to set its highest discount rate in more than a decade to rein in soaring inflation and calm investors who are taking their money abroad.

The surprise decision to raise the main lending rate to 12.5 percent from 9.5 percent effective Thursday comes just weeks after the economy skirted imminent bankruptcy thanks to the promise of immediate international aid.

But an escalating pro-Kremlin insurgency in Ukraine's economically vital eastern industrial basin appears to have to have scared Western investors and put pressure on the ex-Soviet country's currency.

The National Bank of Ukraine (NBU) said consumer prices could grow by 17 percent on an annualised basis this year.

It noted that the rate had jumped to 12.0 percent in June from 0.5 percent in January -- a month before the ouster of a Moscow-backed leader prompted Russia's seizure of Crimea and encouraged the separatist revolt.

Complete story at - Ukraine hikes key rate to highest level in decade - Yahoo News

Twin Ukrainian shocks: tumbling hryvnia and sharply higher inflation

There’s a lot of panic in Ukraine now, and not only the prospect of a Russian military invasion. Everyone who buys anything (which is all of us) are alarmed at increasing prices and the decreasing value of the hryvnia, Ukraine’s battered national currency.

The turmoil in the country has pushed the hryvnia to all-time lows, spurring people to buy dollars and euros.

The hryvnia has dropped around 50 percent since the start of the year, before improving slightly to 11.3 against the dollar on April 17.

Ukraine’s financial solvency depends on receiving help from international creditors.

The International Monetary Fund is considering providing a $18 billion package, short of the $27 billion that Ukraine’s government thinks it needs over the next two years.

On April 14, the European Union approved a mid-term loan of $1.38 billion and an additional $848 million in micro-financial aid for Ukraine. The same day the United States agreed to provide a $1 billion loan guarantee. Meanwhile, the World Bank is going to transfer $750 million in May.

Moreover, the National Bank of Ukraine has raised its key interest rate – from 6.5 percent to 9.5 percent in a bid to strengthen the hrvynia. Besides, regulator has banned 14 commercial banks from interbank foreign exchange market for their speculations.

Government’s official forecast for the average rate of the hryvnia in 2013 is 10.5 to the dollar, while inflation expectations are at 12-14 percent. That is already happening, from the price of bus tickets to prices in groceries, pharmacies and restaurants.

People’s hryvnia wages and savings are simply worth less.

Complete story at - Twin Ukrainian shocks: tumbling hryvnia and sharply higher inflation