KIEV, April 7 – Ukraine’s consumer prices grew at a slower pace in March as people spent less amid economic uncertainty and the hryvnia kept stable value against the U.S. dollar, the government said Tuesday.

Consumer prices rose 1.4% on the month in March, compared with 1.5% in February and 2.5% in January, the State Statistics Committee reported. The prices rose 18.1% on the year compared with March 2008, the committee said.

“Consumer demand weakened in March as a result of lower incomes and falling levels of credit,” the Economy Ministry said in a statement. The ministry also said the government’s budget revenue in March exceeded spending, which contributed to slowing down inflation.

The released figures are good news for the government as the threat of accelerating inflation, coupled with steep economic contraction, has been cited by analysts as the biggest challenge for Ukraine during ongoing severe economic crisis.

Ukraine’s economy is estimated to contract about 20% on the year in the first quarter as falling external demand for steel, the country’s main exports, had forced steel companies to reduce output, analysts said. The government is expected to report the first-quarter GDP statistics later this month.

The government forecast the economy to expand 0.4% on the year in 2009, while consumer prices would not exceed 9.5% on the year in 2009, but analysts said the figures will have to be revised soon.

The World Bank on Tuesday revised its forecast suggesting Ukraine’s economy would contract 9% on the year in 2009, compared with 4% contraction seen earlier, while consumer prices would increase 16.4% in 2009, compared with 13.6% seen earlier.

This is the second revision of the figures by the World Bank over the past four months, suggesting the Ukrainian economy has been deteriorating in reaction to the crisis.

Meanwhile, food and beverage prices rose 1.5% on the month in March, prices for healthcare services increased 2.6% and housing and utilities prices rose 0.5%, according to the committee. The consumer prices rose cumulative 5.9% since January 1, the committee said.

The hryvnia strengthened against the U.S. dollar on Tuesday closing at 8.00-8.15 to the dollar in trading between commercial banks, dealers said. The hryvnia kept value stable at about 8.10-8.30 per dollar through March, easing pressure on prices of imported goods, according to the ministry.

Also, overall wage arrears in Ukraine increased to 1.6 billion hryvnias as of March 1, 2009, effectively reducing amount of money that could be spent by the people and helping to tame demand, the ministry said.

But this same factor may accelerate inflation when companies move to clear the arrear, the ministry said.

Among factors that put upward pressure on inflation in March the ministry cited the continued withdrawal of deposits from the banking system.

Ukraine reported inflation at 22.3% in 2008, up from 16.6% in 2007 and 11.6% in 2006, according to the State Statistics Committee. (tl/ez)