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NBU Inflation Update for 2021

NBU Inflation Update for 2021

Inflation declined to 10% yoy in December 2021. In monthly terms, prices grew by 0.6%. This is according to data published by the State Statistics Service of Ukraine.

As expected, inflation in 2021 exceeded the 5% ± 1 pp target range defined by the Monetary Policy Guidelines, but the deviation was greater than projected. Actual consumer inflation in December 2021 remained above the forecast published in the NBU’s October 2021 Inflation Report. This was driven mostly by stronger second-round effects from higher energy prices and an increase in other production costs impacting a wide range of goods and services. In addition, a faster disinflation at the end of the year was restrained by rising military tensions at the border with Russia, which affected expectations of households, businesses, and investors.

A rise in inflation was a global trend in 2021, driven primarily by a rapid recovery of economic activity following the coronavirus crisis amid supply chain disruptions caused by quarantine restrictions. In particular, this led to an increase in energy prices and the prices of raw materials and components. Measures to cut emissions put additional pressure on prices. The said global factors spurred inflation in Ukraine as well.

On the other hand, internal factors also fueled inflation in Ukraine. They included robust consumer demand supported by higher household income and improved consumer confidence, as well as growth in production costs, labor costs in particular.

Nevertheless, Ukraine went through the inflation peak in September 2021, with inflation declining gradually since October. The strengthening of the hryvnia throughout most of the year, record-high harvests, weaker price pressures in some global commodity markets, administrative restrictions on utility tariffs for households, and the NBU’s monetary policy tightening contributed to the slower growth in consumer prices. The NBU was one of the first central banks to start raising its key policy rate in response to the increase in inflationary pressures in 2021. Over the year, the Ukrainian central bank hiked the key policy rate from 6% to 9% per annum. Moreover, the NBU rolled back its emergency monetary measures in H2.

In 2021, core inflation accelerated to 7.9% yoy, up from 4.5% yoy in 2020

Processed food prices were up by 13% for the year. At the same time, the prices of this group of goods grew more slowly in December than in the previous months. Higher production costs, in particular energy prices, supported the increase in the prices of flour products, dairy, and meat products. On the other hand, the growth in prices for sunflower oil, mayonnaise, and margarine slowed expectedly as the processing of newly harvested sunflower seeds picked up pace.

Prices for services increased by 10.4% as of year-end 2021, driven by stronger pressures from production costs and a revival of consumer demand. Faster price growth was seen in the services of fast food restaurants, cafes, cinemas, dry cleaners, and hair salons, as well as in medical diagnostic services. Personal transport insurance and package tours grew more expensive as well.

Nonfood prices increased by 0.5% yoy in 2021. On the one hand, the prices of home appliances, personal care products, home goods, and household supplies went up, which can be explained by sustained demand, higher production costs, and supply chain disruptions. On the other hand, the appreciation of the hryvnia throughout most of the year restrained price growth for this component. In particular, the prices for clothing and footwear continued to decline due to this factor.

Raw food prices increased by 11.8% yoy

In the meantime, growth in raw food prices slowed in December compared to 12.8% yoy in November. In particular, egg and sugar prices grew more moderately. The prices for apples, citrus fruits, tomatoes, and cucumbers fell deeper. Potato prices also declined. In contrast, the prices of other borshch vegetables rose sharply. In addition, the growth in milk, pork, beef, and salo prices continued to accelerate on the back of the difficult situation in animal farming and higher production costs. Against the backdrop of weaker harvests gathered globally in 2020 and in some countries in 2021, the latter factor drove an increase in cereal prices.

Administered prices rose by 13.6% in 2021

In December 2021, administered inflation remained flat from previous month. The increase in transportation services prices was offset by further slowing growth in the prices of natural gas and utility services, in particular as households were offered annual contracts with fixed gas tariffs and prices of some other utilities were kept unchanged for the duration of the heating season. Besides, the prices of tobacco products grew more slowly.

Fuel prices increased by 26.5% as of the year-end

At the same time, the growth in fuel prices slowed sharply in December 2021 (compared to 33.6% yoy in November) due to the decrease in global crude oil prices. The introduction of government regulation on the fuel market in May 2021 continued to restrain price growth.

After inflation peaked in autumn 2021, disinflation resumed, although being slower than expected. The NBU will continue to pursue the inflation-targeting regime and will apply monetary policy instruments to meet the medium-term inflation target of 5%.

On 20 January 2022, during a press briefing on decisions taken by the NBU Board, the central bank will make public its updated macroeconomic forecast, including inflation projections for 2022–2024. A more detailed macroeconomic forecast will be published in the Inflation Report on 27 January 2022.


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