In September 2023, consumer inflation continued to slow in annual terms – to 7.1% (down from 8.6% in August). In monthly terms, prices increased by 0.5%. This is according to data published by the State Statistics Service of Ukraine.
The actual rates of price growth were significantly below the NBU’s forecast published in the July 2023 Inflation Report. The accelerated pullback in inflation was primarily driven by an increase in supply of food products, including fruits and vegetables from the new harvest, as well as by larger harvests of grains and oil crops, in particular due to the faster pace of harvesting. Amid limited export opportunities, these factors influenced the prices of both raw and processed food products.
The growth in raw food prices decelerated to 0.3% yoy
The main contribution to the slowdown in raw food inflation came from the decrease in fruit prices. For example, prices for watermelons and grapes declined due to higher production volumes, while prices for bananas and citrus fruits fell due to lower external prices. The increase in apple prices slowed down thanks to a better harvest than last year. Vegetable prices continued to fall at a significant pace due to good harvests of most types of vegetables, thanks to favorable weather and larger production volumes in some regions.
Cereal and flour prices continued to decline, reflecting low export prices and increased production. A more moderate rise in egg prices was driven by the base effects, but egg prices remained high amid larger exports. The growth in milk prices slowed as global prices declined and external demand was weak.
The increase in administered prices slowed to 11.3% yoy
The growth in prices for alcoholic beverages decelerated again, on the back of a slower increase in production costs amid pressure from the shadow market supply. The moratorium on raising some utility prices for households continued to restrain administered inflation. At the same time, the growth in prices for transportation services accelerated somewhat as fuel prices resumed their upward trend.
Fuel prices returned to growth (6.2% yoy)
Fuel prices grew in September amid rising global crude oil prices and the depletion of fuel stocks purchased before the excise tax increase in July.
Core inflation decreased to 8.4% yoy in September, down from 10.0% yoy in August
The growth in prices for processed foods continued to decelerate (to 10.6% yoy). Such dynamics were explained by the further easing of pressure from business costs (primarily the cost of raw food inputs), optimization of production and supply chains, and an improvement in inflation and exchange rate expectations. Specifically, prices grew more slowly for meat, dairy products, bread, and flour products. Exchange rate sustainability helped restrain the growth in the prices of foodstuffs with a large share of imports, including fish products, coffee, tea, juices, chocolate, candies, dried fruits, and spices. The decline in sunflower oil prices deepened both as a result of lower global prices and significant volumes of sunflower seeds coming from the new harvest for processing. This led to a slowdown in the growth of prices for the products made from sunflower oil.
The growth in prices for nonfood products also decelerated significantly (to 3.3%), restrained by more optimistic inflation and exchange rate expectations. In particular, prices for personal care products, medicines, furniture, home appliances, household goods, and motor vehicles rose at a slower pace. The prices of electronic devices and clothing and footwear even declined in annual terms.
Services prices also rose more slowly (12.3% yoy), primarily because pressures from business costs eased off. Slower growth was seen in prices for the services of cafes and restaurants, medical, veterinary, and financial services, housing rentals, repair services, car maintenance, and the services of internet providers and hairdressers.
On the other hand, the record-high temperatures in September supported demand for travel and entertainment, which spurred growth in prices for the services of hotels and resorts, package holidays, and cinema tickets. Higher demand also led to an accelerated growth in the prices of educational services.
Consumer inflation has been declining faster than expected. Core inflation was also slightly below the NBU’s forecast published in the July Inflation Report. These price developments were facilitated by the increase in supply of food products, as well as the improvement in inflation and exchange rate expectations. The NBU’s measures to ensure the attractiveness of hryvnia assets and the sustainability of the FX market played an important role in curbing inflationary pressure and improving expectations. Due to the above factors, consumer inflation at the end of the year will be lower than the NBU’s July forecast. However, the impact of large supply of some food products is likely to be short-lived. To keep inflation moderate, the NBU will continue to ensure that hryvnia assets are sufficiently attractive and maintain its active presence in the FX market. These and other factors will be taken into account during the next quarterly review of the macroeconomic forecast in October 2023.