KIEV, Aug. 6 – Ukraine’s consumer prices dropped 0.5% on the month in July, reacting to a bumper grain harvest this season as cash-strapped farmers had rushed to sell the commodity, depressing the prices.

The development, however, triggered concerns that without the government’s quick intervention grain prices may fall to the level that would discourage farmers from producing grain next season.

The consumer prices were up 14.9% in January through July, down slightly from 15.5% hike reported in January through June, mostly reflecting falling prices in the food sector, the State Statistics Committee reported.

The falling prices fueled some optimism that the government may have been finally getting inflation under control, ending rampant increases earlier this year.

But the country’s overall inflation picture still looked grim with consumer prices up 26.8% in July compared with July 2007, still one of the biggest such indicators in the world.

The government predicted inflation at 15.9% in 2008, but economists thought prices will probably grow faster. For example, the World Bank two weeks ago changed its Ukrainian inflation forecast to 21.5% in 2008 from 17% seen earlier.

The price drop in July was mostly attributed to falling food prices, which had declined 1.3% on the month, according to the committee. Most of other prices have actually increased in the period, including transportation prices up 2.1% and housing and utilities prices up 0.9%, according to the committee.

The falling food prices were caused by massive selling of grain in July as farmers have started to harvest the commodity, analysts said. Due to greater areas planted under grain and better weather this year, Ukraine is expected to produce one of the biggest grain harvests in recent history.

Ukrainian farmers produced 33.5 million metric tons of grain as of Aug. 6 from 75% area planted under grains, the government reported on Wednesday.

The figures suggest Ukraine may be able to produce up to 45 million metric tons of grain in the 2008/09 marketing season, a major improvement from the previous year.

But the record grain harvest has been forcing farmers to sell the commodity quickly due to shortage of grain elevators, analysts said. The existing grain elevators may only hold 30 million metric tons.

On the other hand, the massive selling of grain depressed prices to the level that analysts said the development may have consequences and farmers would be discouraged from planting more grain to be harvested in 2009.

“[The government] must immediately start [intervention] purchases of grain, first of all feed grain and barley,” Volodymyr Klimenko, the president of the Ukrainian Grain Union, told a government meeting on Wednesday.

The government must spend at least 3 billion hryvnias to buy 1.5 million metric tons of feed grain and barley in the near future to support the prices, Klimenko said.

But Prime Minister Yulia Tymoshenko, who a week ago predicted that grain prices would soon stop their steep decline, on Wednesday said there were “preconditions” for deflation in August.

“We have all preconditions to make sure that there will be deflation [in August],” Tymoshenko said. (tl/ez)