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NBU June 2023 Inflation Update

NBU June 2023 Inflation Update

In June 2023, consumer inflation in annual terms continued to slow to 12.8%, down from 15.3% in May. In monthly terms, prices increased by 0.8%. This is according to data published by the State Statistics Service of Ukraine.

The actual rates of price growth were significantly below the NBU’s forecast published in the April 2023 Inflation Report. Disinflation was driven by an increase in supply of food and fuel, a decrease in global commodity prices, and an improvement in inflation and exchange rate expectations on the back of sustainability of the cash FX market.

Core inflation decreased to 13.7% yoy in June, down from 15.6% yoy in May

The growth in prices of processed foods continued to decelerate rapidly (to 14.7% yoy). Such dynamics primarily reflected lower pressures on business costs, particularly the costs of logistics, as well as the costs of raw materials and energy in view of sufficient supply. In particular, prices for bread and bread products grew more slowly. Moreover, amid lower global prices, weak demand, and the uncertainty about restrictions on exports to neighboring EU countries, prices of dairy products grew at a slower pace, and sunflower oil prices declined in annual terms. Exchange rate sustainability contributed to slower growth in the prices of food products that have a large share of imported inputs, particularly the prices of fish products.

The growth in prices for the majority of nonfood products also slowed (to 12.2%), influenced by an improvement in inflation and exchange rate expectations on the back of the favorable FX market performance. As a result, the prices of furniture, home appliances, dishes, clothing and footwear, cars, electronics, and personal care products rose at a slower pace.

The growth in services prices also decelerated (to 14.2% yoy). Prices for the services of cafes and restaurants, healthcare institutions, beauty salons, and veterinary clinics increased more slowly. This was due to lower pressures on business costs and sustainability of the FX market. On the other hand, price growth accelerated for the services of hotels and telecommunication, finance, and insurance companies, which could, among other things, reflect expenses incurred previously and a gradual recovery in demand.


The growth in raw food prices slowed to 18.2% yoy

Milk, pork, and chicken prices increased more slowly due to restrained demand, while growth rates for egg prices were lower thanks to larger supply. Growth in prices for cereals and flour also slowed on the back of low export prices and sufficient grain inventories. In addition, sugar prices rose at a slower pace as global prices decreased and domestic supply was strong. Thanks to sufficient supply and sustainable FX market conditions, prices for fruit and vegetables grew more slowly as well.

The growth in administered prices accelerated, to 12.5% yoy

Such dynamics were primarily driven by the increase in electricity tariffs for households. On the other hand, growth rates of prices for alcoholic beverages decreased on the back of the sustainable FX market conditions. Apart from the exchange rate factor, this probably reflected the pressure from the shadow market supply.

Growth in transportation services prices continued to slow due to lower fuel prices. Furthermore, the moratorium on raising some utility prices for households continued to restrain the increase in administered prices.

The drop in fuel prices deepened, to 20.3% yoy

This is explained by the decrease in crude oil prices, large inventories accumulated before the increase in excise taxes, tighter competition, and a high base effect.

Inflation in Ukraine decelerated sharply in H1. This was largely driven by the NBU’s measures to ensure exchange rate sustainability, sufficient domestic supply of foods and fuels, lower global commodity prices (energy prices in particular), and businesses quickly adapting to new challenges of the war. The potential for inflation to decline continues to exist, although the decline might be slower. At the same time, the risks that pro-inflationary pressures might rise are high during the war, including due to the destruction of infrastructure and ecological terrorism committed by russia. For example, the consequences of the destruction of Kakhovka Hydro-Power Plant have not affected consumer inflation yet, but it may have deferred adverse effects. Pressures on consumer prices might also rise as a result of changes in price setting on the electricity market for nonhousehold consumers.

These and other aspects will be factored into the NBU's monetary policy decisions and the updated macroeconomic forecast, which will be made public on 27 July 2023 at a press briefing on monetary decisions taken by the NBU Board in line with the approved and published schedule.

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