KIEV, July 7 – Ukraine’s consumer inflation slowed down in June after the government suspended its controversial depositor bailout plan, while the central bank kept the country’s money supply under control.

Consumer prices rose 29.3% between June and June 2007, slowing down from a 31.1% increase in May vs. May 2007, the State Statistics Committee reported Monday.

This is the first time over the past six months that Ukraine’s annual inflation has actually started to slow down, although still remaining at the highest level in Europe.

“We worked on the demand side of the equation. The demand has been cut allowing to slow down inflation,” Valeriy Lytvytskiy, a chief economist at the National Bank of Ukraine, said in a recent interview with Unian news agency. “What’s bad is that the slowdown cannot be considered irreversible.”

Consumer prices rose 0.8% on the month in June, compared with 1.3% hike in May and 3.1% hike in April, according to the committee.

The June price hike pushed cumulative inflation to 15.5% in January through June, just below the government’s latest inflation forecast of 15.9% for the entire 2008.

The government until recently had been insisting that inflation will not exceed 15.3% in 2008, but was forced Saturday to revise the figure to 15.9% after a clash with the National Bank of Ukraine.

The NBU on Monday again rejected the latest forecast as too optimistic amid concerns the government will resume massive social spending in the second half of the year, according to Iryna Vannikova, the spokeswoman for President Viktor Yushchenko.

Prime Minister Yulia Tymoshenko, citing the lack of funds in the budget, on June 26 suspended her controversial depositor bailout plan, which had massively contributed to the record high inflation in Ukraine.

But Tymoshenko said the government would resume redeeming failed Soviet-era bank deposits after lawmakers approve a program that would unlock privatization revenue this year.

The plan calls for the payments of 20 billion hryvnias in 2008, including 6 billion hryvnias in cash and 14 billion hryvnias through offsetting utility debts.

Overall debts are estimated at more than 120 billion hryvnias and Tymoshenko plans to clear them all through the end of 2009, just ahead of the next presidential election in Ukraine.

About 6 million people have already received a total of about 6 billion hryvnias in cash as part of the bailout plan between January and the middle of June, but more had been needed, government officials said.

Tymoshenko, who defended the plan on Monday, said budget amendments will call for an extra 1.5 billion hryvnias for the payments in the second half of 2008, while unlocking privatization revenue would provide a further boost for the plan.

“If anybody tells you that [high] inflation in the country was due to our redemption of these poor deposits or due to increasing wages and pensions, don’t believe this,” Tymoshenko said.

The NBU, which allowed the hryvnia to appreciate sharply against the U.S. dollar in May, had reduced the money supply in the economy, helping the government to fight high inflation.

But there were signs that high inflation in Ukraine may have been contributing to slower investments in the economy.

Domestic investments rose 10% on the year in the first quarter, compared with 30% increase in the same period last year, according to the National Bank of Ukraine.

“Foreign investments are there, but domestic investments have been weakening,” Lytvytskiy said. “At the same time [domestic] consumption has been increasing at much faster pace.”

“This is dangerous,” he said. “If the investments are lagging behind, then supply of goods will also be lagging behind, while growing incomes may lead to a serious price shake-up.” (tl/ez)