Ukraine's inflation, the fastest in Europe, slowed in June, as food prices rose at a lesser pace amid increasing supply of fruits and vegetables from local farms.

The annual inflation rate fell to 29.3 percent in June from 31.1 percent in May, which was the highest in Europe, the Kiev- based state statistics committee said in a statement on its Web site today. Food prices, which account for about 60 percent of Ukraine's consumer price index measuring basket, rose 43.9 percent in June from a year ago, compared with a 48.5 percent increase in May, the committee said in the statement.

Economists expected the inflation rate to slow to 29.5 percent, according to the median of 10 estimates in a Bloomberg survey.

The government of Ukraine, where the World Bank estimates almost 3.7 million people live in poverty, has so far failed to reduce the average inflation rate this year from 16.6 percent in 2007. The government raised its official inflation forecast for this year to 15.3 percent, compared with 9.6 percent initially expected.

Consumer prices rose 0.8 percent in June from May, the slowest monthly increase so far this year, according to the committee. Producer prices rose 4.2 percent in June from May, compared with a 3.7 percent increase in May from the previous month, the committee said in another statement posted on the web site today.

Higher-than-expected inflation threatens the country's economy growth and prompted Standard & Poor's to cut the country's credit rating on June 12.

Ukraine's central bank, also known as the Natsionalnyi Bank Ukrainy, has revalued the hryvnia rate by 4 percent on May 21 to fight inflation. It expects inflation at below 20 percent in December 2008, after the government increased budget spending 49 percent in the first five months of the year, compared with the same period a year ago.

 Bloomberg.com