In July 2023, consumer inflation in annual terms continued to slow, to 11.3%, down from 12.8% in June. In monthly terms, deflation occurred as prices fell by 0.6%. This is according to data published by the State Statistics Service of Ukraine.
The actual rates of price growth were below the trajectory of the NBU’s forecast published in the July 2023 Inflation Report. The quickened pullback in inflation was due to an expanded supply of raw foods, as well as the further impact of favorable FX market conditions and improved inflation expectations on the prices of certain goods, primarily imported ones.
Core inflation decreased to 12.3% yoy in July, down from 13.7% yoy in June
The growth in prices for processed foods continued to decelerate rapidly (to 13.9% yoy). These inflation developments were driven by the continued easing of pressure from businesses’ costs, including those of raw materials and energy, the further adjustment of production chains and removal of supply chain disruptions, as well as more upbeat inflation expectations amid a stable situation in the FX market. Specifically, exchange rate sustainability helped restrain the growth in the prices of food products made out primarily of imported inputs. Those include fish products, chocolate, coffee, juices, dried fruits, nonalcoholic beverages, and spices. Although external prices grew, the increase in the domestic price of sunflower oil continued to decelerate. Among other things, this was due to problems with its export, especially because of the termination of the grain corridor. As global prices declined and domestic demand waned, prices for dairy products grew at a lower pace.
Price increases for nonfood products also slowed (to 10.0%), restrained by more optimistic exchange-rate and inflation expectations amid favorable FX performance. As a result, prices for personal care products, clothing and footwear, toys, furniture, home appliances, household goods, and motor vehicles went up at subdued rates, while the prices of electronic devices declined on a year-on-year basis.
The growth in services prices also decelerated (to 12.4% yoy). Prices for cafe and restaurant services rose more slowly against the backdrop of sustainable FX market conditions and reduced pressure from businesses’ expenses. The growth decelerated in the prices of healthcare, veterinary care, tourism, car maintenance, home repairs, gym memberships, hotel stays, and trips to the hairdresser. This was primarily thanks to eased-up pressure from the costs incurred by businesses. At the same time, some of this impact came from weak demand, in particular due to the still-difficult financial standing of households.
The growth in raw food prices decelerated to 12.3% yoy
Prices for cereals and flour decreased due to low export prices, large inventories of grains, and higher production volumes. Vegetable prices grew more slowly thanks to an increase in supply, and approached last year’s levels. Due to higher supply, the growth in egg prices also moderated, but they still exceeded last year’s levels on the back of larger exports. On the other hand, prices for meat grew more rapidly as supply decreased amid unfavorable weather conditions and higher energy and fuel prices. The growth in fruit prices also accelerated, primarily due to low supply of watermelons.
The growth in administered prices slowed to 12.0% yoy
The rise in prices for alcoholic beverages and tobacco products decelerated on the back of favorable FX market conditions and pressures from shadow market supply. The growth in prices for transportation services slowed as well, thanks to lower fuel prices compared to last year. The moratorium on raising some utility prices for households continued to restrain administered inflation.
The decline in fuel prices slowed, to 10.6% yoy
This is explained by the return to the pre-war rates of the VAT and excise tax. On the other hand, a decrease in global crude oil prices, large fuel inventories procured before the increase in the excise tax, and stronger competition on the retail market restrained the growth in fuel prices.
Inflation continues to slow thanks to an increase in supply of raw foods and improved expectations amid exchange rate sustainability. The latter is driven, among other things, by the NBU's consistent monetary policy aimed at maintaining the attractiveness of hryvnia-denominated savings.
The NBU forecasts inflation to decelerate further – to 10.6% as of the end of 2023 and 8.5% in 2024. At the same time, risks that inflationary pressures will rise persist, primarily due to high security risks, which affect expectations, and further damage caused by the war. Moreover, the faster-than-expected recovery in economic activity might influence the price dynamics. To maintain exchange rate sustainability, improve expectations, and support the disinflation trend, the NBU will continue to ensure the needed monetary conditions.