In December 2022, consumer inflation was 26.6% yoy, practically unchanged from November (26.5%) and October (26.6%). In monthly terms, prices grew by 0.7%. This is according to data published by the State Statistics Service of Ukraine.
The acceleration of inflation in 2022 is primarily related to the consequences of russia’s full-scale war of aggression. Those include the destruction of businesses and infrastructure, the disruption of production and supply chains, the growth in businesses’ production costs, and ad-hoc hype-driven demand for certain goods and services. The indirect fallout from the war – exchange rate effects and worsening expectations of households and businesses over the year – also affected prices. In addition, prices in Ukraine came under pressure from the global speed-up in inflation: it was last year that most countries had posted new multiple-year inflation highs.
Although the war dragged on and global inflation ran high, the actual rates of price growth in Ukraine remained under control, and inflationary pressure stabilized in recent months. NBU was able to ensure relatively moderate inflation dynamics by taking anti-crisis measures jointly with the government and international partners. These measures succeeded thanks in no small part to the victorious deeds of the Ukrainian army, which not only repelled the russian offensive, but also liberated Ukrainian territory.
At the outbreak of the russian invasion, the NBU stepped away from its yearslong pursuit of conventional inflation-targeting principles and imposed a fixed exchange rate regime. Halfway into the year, to balance the economy, the NBU made a one-off adjustment of the exchange rate and kept it unchanged. The fixed exchange rate is an important anchor for the expectations of all economic agents. It served as a safeguard against panic-fueled sentiment.
The NBU’s return to an active interest rate policy mid-year and key policy rate hike to 25%, along with the further expansion of the range of instruments to support household savings, also helped stabilize expectations and curb inflation. The growth in consumer prices was restrained by the government’s measures such as the moratorium on price increases for utilities for households, and cuts to certain taxes (including the VAT on fuel).
Actual consumer inflation in December 2022 came out even lower than the forecast published in the October 2022 Inflation Report. This was in part due to the reopening of supply routes to the liberated Kherson oblast, the expansion of the supply of food products, and the weakening of consumer demand amid blackouts caused by months of terrorist attacks from russia. Inflation was also subdued by the hryvnia’s strengthening in the FX market’s cash segment in the autumn and the stabilization of inflation expectations.
Core inflation rose to 22.6% in 2022
Processed food products increased in price by 29.3% yoy. In December, the growth in prices for relevant goods accelerated in annual terms, driven by businesses’ increased production costs and persistent supply chain disruptions. In particular, against the backdrop of power outages, prices went up for products that are energy-intensive to produce and that require heat treatment or cold storage. These include meat, dairy, and edible-oil products, confectionery, nonalcoholic beverages, and canned food. Prices for foods with a large share of imported inputs in the end products – fish products, olive oil, chocolate, coffee, tea, and spices – also grew more quickly. This was partially due to the drawdown of stocks of the products and raw materials purchased before the official exchange rate adjustment in July, and more expensive logistics. The growth in export prices for sunflower oil affected its price increases in the domestic market. Pasta prices, on the other hand, rose more slowly.
Nonfood prices increased by 21.3% in 2022, having slightly accelerated in December. In December, the prices of clothing and footwear, household goods, cars, toys, animal feed, newspapers, and stationery grew in annual terms. This is attributable to the drawdown of stocks of the imported products purchased before the July adjustment of the official exchange rate, and the uptick in companies’ expenses to ensure business continuity. Blackouts accelerated the growth in the prices of heat retention products, including blankets. By contrast, price increases for nonstaple goods decelerated amid a weak consumer demand and its ad-hoc changes due to power shortages. Specifically, price growth decelerated for electronic devices, home appliances, and more.
Having slowed in December compared to November, the growth in services prices, as of end-2022, came in at 14.8%. The slowdown in December was related to the persistence of weak consumer demand, in part due to the impact of power outages. The growth in prices for gym services, car insurance, driving lessons, parking slots, residential building maintenance, cable television, and travel services decelerated. On the other hand, as costs increased, so did the prices of healthcare, cafe and restaurant services, temporary accommodation, internet, and mobile communications.
Raw foods rose in price by 41.6% in 2022
In December, the growth in prices for raw foods decelerated in annual terms. In particular, prices for vegetables, primarily those used in the cooking of borshch, rose at a slower pace, partially due to shorter shelf lives of such products in conditions of power cuts. Meat prices grew more slowly, which can be attributed to the effects of reduced feed prices and to storage issues. The increase in egg prices decelerated as their supply expanded. Price increases for flour, buckwheat, and other cereals slowed thanks to better-than-expected harvests.
The liberation of a part of the Kherson oblast and the unblocking of supply routes from Ukraine’s other oblasts played a significant role in slowing food price inflation in December. What also restrained price growth was the drop in the demand for meals offered by cafes and restaurants as blackouts intensified, and a shift in households’ food preferences towards products that can long remain safe to eat without refrigeration.
Administered prices increased by 15.3% over the past year
In December 2022, in annual terms, prices for alcoholic beverages and tobacco products increased more quickly, as did pharmaceutical products under state monitoring, because of the rise in businesses’ expenses on energy and raw materials. Conversely, the growth in prices for transport services continued to slow, reflecting the stabilization of fuel prices in previous months. The moratorium on raising utility prices for households continued to restrain the increase in administered prices.
Fuel price growth reached 69.4% in 2022
This was due to increased demand for energy from households and businesses, driven by the need to fuel generators during power shortages, and because of fuel supply chain disruptions. Rising fuel prices made a significant contribution to the acceleration of inflation in 2022, as they affected the prices of a wide range of goods.
Even as the war grinds on, inflation developments in Ukraine remain under control, and the NBU predicts a moderate easing of inflation in 2023. This will be facilitated by a consistent economic policy, support from international partners, and a slowdown in global price growth. However, consumer inflation in Ukraine will remain high. In addition, risks of inflation accelerating and expectations deteriorating are still significant, including due to a possible escalation on the frontlines, as well as terrorist attacks by russia and a resulting shortage of electricity.
On 26 January 2023, 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 2023–2025. A more detailed macroeconomic forecast will be published in the Inflation Report on 2 February 2023.