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NBU November 2021 Inflation Update

NBU November 2021 Inflation Update

In November 2021, consumer inflation declined in annual terms to 10.3% (down from 10.9% in October). In monthly terms, prices increased by 0.8%. This is according to data published by the State Statistics Service of Ukraine.

Actual consumer inflation continued to slow as expected, but it remained above the forecast published in the NBU’s October 2021 Inflation Report. This was due to second-round effects of higher prices for energy and raw materials and increases in businesses’ other production costs, including wages.

Core inflation picked up slightly in November (to 7.7% yoy from 7.6% yoy in October)

Driven by higher production costs, prices for processed foods (13.3% yoy) continued rising. Pasta and bakery products increased in price, as did dairy and meat products. Meanwhile, the growth in sunflower oil prices continued to decelerate due to the coming to market of the processed products made of newly harvested crops, and because of a higher base effect.

The pace of increase in services prices continued to rise (to 10.1% yoy). Services of movie theaters, gyms, hotels, dry cleaners, and catering businesses became more expensive due to increased production costs and quarantine restrictions. Prices for hospital services kept growing amid a spike in demand fueled by the new wave of COVID-19. Car insurance prices also increased. Prices for tourist services grew significantly.  That includes the surge in package tour prices.

Nonfood products grew in price at the same rate as in the previous month (1.5% yoy). On the one hand, home textiles and household appliances got more expensive, including due to the weakening of the hryvnia against the U.S. dollar in the second half of November. On the other hand, prices for clothing, footwear, and cars continued to decline as the hryvnia strengthened against the dollar in previous months and against a number of other MTP currencies in November.

The growth in raw food prices slowed sharply (to 12.8% yoy).

The growth in prices for fruits and vegetables decelerated as supply expanded. In particular, apples and citrus fruits continued to fall in price, tomato prices were down, while the rise in cucumber prices slowed sharply. The pace of growth in sugar prices also continued to decline thanks to high sugar beet yields. Egg prices also grew more slowly.

However, prices for milk and meat increased more quickly amid adverse conditions in livestock farming and rising production costs, including feed and energy prices.

Increases in administered prices slowed as well (to 13.7% yoy).

The growth in natural gas prices for households decelerated rapidly due to the fading of last year’s low base effect and because of the annual contract option for households. Heating services also grew more expensive at a slower pace, as heating prices for households remained constant. The growth in tobacco product prices also slowed. At the same time, prices for alcoholic beverages continued to rise moderately.

Fuel price increases decelerated somewhat (to 33.6% yoy)

This was primarily due to base effects and the hryvnia’s appreciation in previous months. The introduction of government regulation of the fuel market in May 2021 also continued to have a certain impact.

The peak in consumer price growth was over in September, judging by how inflation decelerated in October and November. Consumer inflation will continue its gradual decline. This will be facilitated by this year’s better harvests, price corrections in global commodity markets, the hryvnia’s relative strength in 2021, the fading of low base effects, and the further impact of the NBU’s monetary policy tightening measures.

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