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NBU September 2022 Inflation Update

NBU September 2022 Inflation Update

In September 2022, consumer inflation accelerated to 24.6% yoy, up from 23.8% in August. In monthly terms, prices grew by 1.9%. This is according to data published by the State Statistics Service of Ukraine.

The main reason for the acceleration of inflation remains the fallout from russia’s full-scale war against Ukraine: production facilities destruction, supply chain disruptions, decreases in the supply of goods and services, and rising production costs of businesses. Added price pressure came from the deterioration of households’ and businesses’ expectations, as well as the adjustment of the official hryvnia exchange rate in July, a measure that has nonetheless incentivized domestic businesses to step up production and made the Ukrainian economy more stable as the war of attrition grinds on.

Price growth accelerated as expected, but remained below the NBU’s baseline forecast published in the July 2022 Inflation Report, thanks to the faster saturation of the market with petroleum products and the stabilization of fuel prices.

Core inflation accelerated to 20.4% yoy from 19.1% yoy in August

The growth in nonfood prices sped to 18.8% yoy, spurred by the July adjustment of the hryvnia’s official exchange rate, limited supplies of new batches of goods, the drawdown of old inventories, and costly logistics. Specifically, household goods (cookware, furniture, textiles, appliances, chemicals), electronic devices, cars, medications, personal care products, and home repair goods rose in price at a faster pace. Clothing and footwear prices returned to growth. Prices for a number of nonfood products were also affected by the need to further restore or improve living conditions, in particular in preparation for the upcoming cold weather.

Price increases for processed foods also accelerated (to 25.5% yoy). Such dynamics are attributable to the growth in businesses’ production costs, including those of raw materials, energy, and logistics, high global prices, and the July adjustment of the official exchange rate. Prices grew at a higher pace for dried fruits, fish products, and nonalcoholic beverages, which are mainly imported, as well as sunflower oil, its processing products (spreads and mayonnaise), and dairy products, whose prices are heavily dependent on global market conditions. On the other hand, bread prices increased more slowly, in part due to the sufficient harvest of early cereals.

Services prices grew at the previous month’s rate (15.6% yoy). On the one hand, prices for healthcare, the internet, and the services provided by beauty salons, dry cleaners, and cafes and restaurants increased faster. Upward pressure on housing rentals intensified, fueled by demand from citizens returning to their places of permanent residence and from internally displaced persons. Aggravated by the shortage of some construction materials and labor, this factor also pushed the prices of home repair services higher. On the other hand, prices for financial services and higher education grew more slowly.

The growth in raw food prices almost held steady (40.9% yoy)

Price increases for imported fruits (bananas, oranges, kiwis) accelerated due to higher global prices for these goods, supply chain disruptions, and the effects of the hryvnia exchange rate adjustment in July. Prices for meat, pork in particular, grew at a higher clip, because of the shortage of pig carcasses, as did egg prices, which were driven up by a decrease in chicken numbers and a rise in production costs. Sugar prices rose faster, fueled by expectations for an increase in energy prices.

In contrast, the growth in prices for borshch vegetables (cabbage, beets, carrots, potatoes) decelerated as supply grew from central and northern regions. Prices for flour, buckwheat, and other cereals rose more slowly, restrained by upbeat expectations for the future harvest.

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

Alcoholic beverages and tobacco products continued to grow more expensive as businesses’ production costs went up. July’s exchange rate adjustment resulted in prices rising for imported medications that are on the list of goods tracked by the government.

Meanwhile, utility prices were little changed in annual terms. With fuel prices stabilizing, transport services rose in price at a slower clip.

Fuel price growth slowed (to 66.2% yoy)

This was due to continued global oil price decreases and the saturation of the domestic market as supply chain disruptions eased.

Inflation developments remain under control, while the actual increase in inflation has come out slower than the NBU projected. However, rather high risks persist that inflationary processes may unfold and that expectations may be disrupted further. This is driving up underlying inflationary pressures, despite consumer demand being subdued.

All of these aspects will be factored into monetary policy decisions and the updated macroeconomic forecast, which will be made public on 20 October 2022, at a press briefing on monetary decisions taken by the NBU Board. A more detailed macroeconomic forecast will be published in the central bank’s Inflation Report on 27 October 2022.

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