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Ukraine's Soaring Inflation

Economics / Inflation Jun 16, 2015 - 01:17 PM GMT

By: Steve_H_Hanke

Economics

I estimate the current annual implied inflation rate in Ukraine to be 92 percent. This is the world's second-highest inflation rate, far lower than Venezuela's 480 percent but slightly higher than Syria's 75 percent.


I regularly estimate the annual inflation rates for Ukraine. To calculate those inflation rates, I use dynamic purchasing power parity (PPP) theory. I computed the 92 percent rate by using black-market exchange rate data that the Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year.

A recent front-page feature article in the New York Times attests to the severity of Ukraine's inflation problem. Danny Hakim's reportage contains many anecdotes that are consistent with my inflation estimates based on PPP. For example, chocolate that used to cost 80 Ukrainian hryvnian per kilogram has dramatically increased to 203 Ukrainian hryvnia per kilogram over the past 17 months -- a 154 percent increase. On an annualized basis, this amounts to an inflation rate of 93 percent -- almost exactly the same number I obtained when applying the scientific PPP methodology.

As evidence of the Alice in Wonderland nature of Ukraine's current state of affairs, President Petro Poroshenko penned an op-ed in the Wall Street Journal on June 11. The title of his unguarded, gushing piece perfectly reflects the sentiments contained in his article: We're Making Steady Progress in Ukraine, Despite Putin.

The President failed to even allude to Ukraine's inflation problem. He is apparently unaware of the harsh realities facing the citizens of his country. He is also apparently unaware that his finance minister, Natalie Jaresko, whom he praises to high heaven, was recently in Washington, D.C., where she used a new Ukrainian law as cover to threaten a sovereign debt default. The reportage on these threats appeared in London's Financial Times on June 11, the same day the Wall Street Journal published President Poroshenko's op-ed.

It is time for Ukraine to get real.

By Steve H. Hanke

www.cato.org/people/hanke.html

Twitter: @Steve_Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2015 Steve H. Hanke - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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