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NBU November 2022 Inflation Update

NBU November 2022 Inflation Update

In November 2022, annual consumer inflation remained almost unchanged from the previous month, at 26.5% (26.6% in October). In monthly terms, prices grew by 0.7%. 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 October 2022 Inflation Report. This was attributed to an increase in supply of food products, de-occupation of a part of Ukrainian territory, sell-off of nondurable goods due to electricity shortages, and weaker consumer demand. Moreover, inflation was restrained by a strengthening of hryvnia exchange rate on the cash market, which was, among other things, driven by the NBU’s previous measures.

Core inflation accelerated to 22.1% yoy in November (up from 21.5% yoy in October)

The growth in processed food prices accelerated to 28.0% yoy. Fueled by the increase in energy prices, prices rose for foods the production of which is energy-intensive or requires thermal processing, as well as for products that need to be cooled. These include meat and dairy products, confectionery, nonalcoholic beverages, and canned food. In addition, imported food products continued to grow in price, in particular fish products and olive oil.  On the other hand, prices for sunflower oil, pasta, and bread grew more slowly thanks to better-than-expected harvest of sunflower seeds and early grain crops.

The growth in nonfood prices accelerated to 20.7% yoy. This was driven by the depletion of imported goods inventories accumulated in summer at a lower exchange rate, as well as by higher business costs, which were pushed up, among other things, by the need to purchase electric generators to ensure uninterrupted operation. Specifically, the increase in prices accelerated for clothing and footwear, household goods (cookware, furniture, home appliances, and chemicals), cars, and personal care products. At the same time, prices for nonstaple goods, particularly household appliances and home textiles, rose more slowly. 

Services prices grew at the same rate as in October (15.6% yoy). On the one hand, the rise in prices of services of beauty salons and sport clubs, car insurance, residential building maintenance, and travel services slowed. On the other hand, prices of healthcare services, services of restaurants, housing rentals, and services of internet providers grew more rapidly on the back of higher business costs.

The growth in raw food prices slowed (to 44.4% yoy)

Thanks to increased supply, growth rates declined for the prices of borshch vegetables, which include potatoes, cabbages, carrots, beetroots, and onions. The growth in prices for oranges and bananas decelerated. Apple prices remained lower than last year due to excessive supply that built up due to complicated exports and limited processing capacity.

Prices for pork and beef also grew at a slower pace, driven by the effect of power outages, which led to problems with storage and the need to sell products more quickly.  Moreover, price growth slowed for sugar, flour, buckwheat, and other cereals thanks to strong harvests.

At the same time, egg prices continued to go up due to the disruption of technological production chains, loss of production assets, and an increase in production costs.

The rate of growth of administered prices remained at the previous month’s level (14.7% yoy)

On the one hand, the prices of alcoholic beverages rose more rapidly due to producers incurring higher costs of energy, raw materials, and packaging. On the other hand, the growth in transportation services prices continued to slow (on the back of a relative stabilization in fuel prices), same as the prices of pharmaceutical products under state monitoring. Moreover, the moratorium on raising utility tariffs for households restrained the growth in administered prices.

Fuel price growth continued to slow in annual terms (to 59.4% yoy)

This was explained by slower growth in crude oil prices. At the same time, fuel prices rose month-on-month due to higher business costs and higher demand on the back of electricity supply disruptions. 

The dynamics of consumer inflation in November reflects the first signs of inflationary pressure easing driven by a temporary increase in supply of raw foods, weaker demand, and the NBU’s previous measures, including the measures to balance the FX market and raise the attractiveness of hryvnia assets. At the same time, due to the consequences of the full-scale war, consumer prices continue to grow rapidly and risks of a rise in inflationary pressures remain high due to electricity shortages.

Taking this into account, the NBU keeps the key policy rate at 25% and will raise reserve requirements for banks. This will help ensure attractiveness of hryvnia assets, support exchange rate stability, maintain control over price dynamics, and bring inflation lower next year. 

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