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NBU May 2022 Inflation Update

NBU May 2022 Inflation Update

In May 2022, consumer inflation accelerated to 18% yoy, up from 16.4% in April. In monthly terms, prices grew by 2.7%. This is according to data published by the State Statistics Service of Ukraine.

The faster inflation resulted from both global trends, such as high energy prices, and internal factors – mainly those related to the full-scale war. These were disrupted supply chains, destroyed company assets, higher production costs, and stronger household demand for some goods and services on the back of insufficient supply.

Core inflation sped up to 13.8% yoy, from 13% yoy in April

The rise in the prices of processed foods accelerated, to 20.1% yoy. Prices for dairy and fish products and nonalcoholic beverages also grew at a faster pace. In contrast, the growth in sunflower oil prices decelerated further, due to, among other things, limited export capacities. Prices for meat products grew more slowly, dragged down by shrinking sales markets for these products and cheaper meat for processing.

The growth in nonfood prices sped up, to 7.3% yoy. The largest price increases were seen in household items (kitchenware, furniture and household appliances), electronic devices, cars, and personal care items. This can be explained by the limited supply of these goods due to the difficulties with delivering them, the physical destruction of warehouses, and by the stronger demand for these goods fueled by people’s return home and the need to rebuild their houses. Prices for pharmaceuticals stopped rising, thanks to a partial recovery in supplies.

The growth in services prices accelerated noticeably, to 13.8% yoy. With housing demand in Ukraine’s relatively safe western regions remaining persistently robust, housing rentals and hotel rates continued to increase in price. The cost of housing repair services increased, due to the partial resumption of housing construction and the need to rebuild housing in deoccupied territories, as well as due to the ongoing shortages of some consumables. Prices for the services of beauty parlors, cinemas, sports facilities and catering establishments grew at a faster pace, propelled by rebounding demand. Taxi fares also became more expensive, driven up by higher fuel prices and fuel shortages.

Raw food prices also grew more rapidly, by 28.9% yoy

Prices for vegetables, such as cucumbers, tomatoes, zucchini and aubergines, increased further in the wake of southern regions of Ukraine being occupied, disrupted supply chains, and higher energy prices. Although growing at a slightly slower pace, prices for other vegetables and fruits remained higher than last year because of the lower supply of early fruits and vegetables. Cereals, in particular buckwheat and rice, became significantly more expensive due to the depletion of their stocks and reduced supplies. The growth of salt prices also accelerated, primarily due to the destruction of Ukraine’s main salt-producing company and limited imports. Conversely, egg prices continued to fall, thanks to the substantial supply on the domestic market. A surfeit of agricultural raw materials made fodder cheaper, which slowed down the rise in meat prices. Milk prices also increased at a slower pace.

The increase in administered prices decelerated, to 13.8% yoy

The slower growth resulted mainly from waning base effects for utilities amid fixed tariffs for most of them. Meanwhile, the rise in the prices of alcoholic beverages accelerated significantly, which may be explained by the easing of restrictions on alcohol sales in various regions of Ukraine and the limited supply of alcohol. Prices for tobacco goods increased more quickly. With fuel prices growing, prices for transport services increased at a faster pace.

Fuel price growth accelerated rapidly, to 57.5% yoy

The accelerating growth resulted mainly from high oil prices, fuel shortages and rising logistics costs. The government stopped administering fuel prices in May in order to deal with fuel shortages.

The rise in consumer inflation in May indicates a further increase in inflationary pressures. Risks of inflation remain significant as russia continues its full-scale war against Ukraine, deliberately destroying food depots and trade facilities, imposing port blockades, and damaging transport infrastructure.

In view of the above, on 3 June 2022, the NBU raised its key policy rate from 10% to 25% per annum. This step aims to protect households’ income and savings in the hryvnia, boost the attractiveness of hryvnia assets, and to ease pressures on the foreign exchange market. It will also bolster the NBU’s ongoing efforts to maintain a stable exchange rate, thus restraining growth in the prices of imported goods.

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