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NBU October 2024 Inflation Update

NBU October 2024 Inflation Update

In October 2024, consumer inflation accelerated to 9.7% yoy, up from 8.6% yoy in September. In monthly terms, prices increased by 1.8%. This is according to data published by the State Statistics Service of Ukraine.

The actual rates of price growth accelerated as projected, but surpassed the trajectory of the forecast outlined in the October 2024 Inflation Report. One of the main factors behind the deviation from the forecast trajectory was a faster pickup in food inflation due to a stronger-than-expected impact of adverse weather on agricultural crops and therefore a smaller supply of food products. Administered prices and fuel prices also grew somewhat more quickly than anticipated.

Underlying inflationary pressures also came in stronger than projected. Specifically, core inflation rose to 8.3% in October, up from 7.3% in September. These developments were primarily driven by faster increases in processed-food prices due to higher costs of raw-food inputs, and by further growth in business costs of power and labor.

The growth in raw-food prices picked up significantly, to 10.5% yoy

A heat wave in the summer and early fall of this year affected the crop yields, ripening times, and quality parameters of a range of vegetables and fruits, reducing their supply. In particular, prices for borshch vegetables and most fruits rose faster. Tomato and cucumber prices also remained higher than last year, but their growth decelerated in October.

The increase in raw-material and feed prices and production costs, including energy, affected the prices of flour, cereals, milk, and meat. The same factors probably also played a role in the significant slowdown of the decrease in egg prices in annual terms. By contrast, the decline in sugar prices gathered speed as producers actively processed newly-harvested beets.

Administered prices rose at a slightly accelerated pace of 14.5% yoy

Prices for alcoholic beverages and tobacco products increased more sharply, including due to a weaker hryvnia in previous months and efforts to combat shadow-market supply. The growth in prices for pharmaceuticals and healthcare products and equipment accelerated. As before, administered inflation was restrained by the moratorium on raising certain utility tariffs for households.

The increase in fuel prices decelerated sharply, to 3.2% yoy

The fuel market retained a significant supply, despite a short-lived rise in raw-material prices that occurred in the first half of October.

Core inflation rose to 8.3% yoy

The growth in processed-food prices accelerated sharply, to 10.7% yoy. The rates of growth in prices for bread and certain flour-based and confectionery products increased because of higher business costs. Prices for most fermented-milk products, cheeses, and butter continued to rise, reflecting a constrained supply of dairy raw material, an increase in purchase prices and production costs, as well as a pickup in commodity exports. Certain imported goods, such as coffee and chocolate, rose in price faster. Sunflower oil prices returned to growth, spurred on by rising global prices and a limited supply of recently harvested seeds. Intensified pressure from production costs led to a faster increase in meat product prices.

Prices for nonfood products grew faster (2.9% yoy), primarily due to the exchange rate factor in earlier periods. This likely also drove the deceleration in price decreases for clothing and footwear.

Services also rose in price somewhat faster, by 11.0% yoy. Prices for healthcare, communications, and personal care grew more quickly. Meanwhile, the growth in the prices of transport services and car maintenance, as well as insurance, decelerated.

Inflationary pressures will persist in the coming months, driven by a smaller supply of some food products than last year, an expansion of aggregate demand fueled by significant budget spending, a surge in wages, and power shortages during the heating season.  

In its October forecast, the NBU expected inflation to exceed the 10% level in January 2025. According to latest data, however, the risks of it happening sooner have gone up. The NBU nevertheless continues to project that inflation will begin to ease in spring 2025 already, and that it will end that year at 6.9% and continue to move toward the NBU’s 5% target. This will be facilitated by the NBU’s interest-rate and exchange rate policy measures, as well as by a growing supply of foods and a weakening of external price pressures.

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