Cumulative inflation in Ukraine for 2016 has already reached 46%. According to our forecast, it will be 52%–53% by year end.
Ukraine’s Finance Ministry and National Bank (NBU) “official inflation forecast” for 2016 is12% (the same forecast made at the start of 2015).
We at the IMF Group, after re-reading classic economic theories, have concluded there must be a mathematical pattern (based on a sufficiently large sample of data) to calculate what Milton Friedman called “the inflationary tail” because retail prices cannot be decreased nationwide.
The sample is inflation ranging from 40% to 60%. Our statistical evaluations are based on dozens of historical cases when inflation ranged from 40% to 60% per year, the same as in Ukraine during 2015.
Establishment of regularities shows the inflationary tail following 40% to 60% in the previous year equals, or 0.56 (from the base year level).
It follows inflation in Ukraine during 2016 will range from 25,89% to 29.83%, without stimulating monetary policy. Macroeconomic gourmands may note extremus in the chart, noting countries which conducted an “incentive” policy in already familiar cases. (We haven’t spent time looking for more detailed links with monetary policy, assuming a wide selection would detect a general pattern).
The IMF Group’s inflation forecast made for this year was 60%, which is much closer to the actual 53% than the official forecast of 12%, or even the revised official forecast for half-year results in 34%.
If our prediction for 2016 is be correct, it guarantees UAH 120 billion in additional revenues, even with a a decrease in basic tax rates in the draft version of Ukraine’s “Uzhanina tax code.”