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NBU June 2021 Inflation Update

NBU June 2021 Inflation Update

In June 2021, consumer inflation was flat from the previous month in annual terms, at 9.5%. In monthly terms, prices grew by 0.2%. This is according to data published by the State Statistics Service of Ukraine.

Although consumer inflation turned out to be higher than the forecast published in the April 2021 Inflation Report, the deviation from the forecast decreased. Slower growth in raw food prices offset the effect of the continued increase in natural gas and sunflower oil prices, and that of stronger underlying inflationary pressures.

Core inflation accelerated to 7.3% yoy in June, up from 6.9% yoy in May

Prices for processed foods grew further (by 12.1% yoy), driven by high global food prices and robust consumer demand. Sunflower oil prices rose at a faster pace, as did those of the products made with it (mayonnaise, margarine, and spreads). Higher production costs resulting from increased raw material and energy prices pushed up the prices of pasta and confectionary products, as well as those of meat and dairy products.

The growth in services prices also sped up, to 8.1% yoy. The services of cafes, restaurants, cultural establishments, and recreational facilities, personal vehicle insurers, cable TV and Internet providers, and taxis became more expensive on the back of solid consumer demand and higher production costs. In contrast, the growth in prices for personal care services decelerated amid eased quarantine restrictions. The prices of tourist services also grew more slowly, due, among other things, to the suspension of passenger air travel between Russia and Turkey.

Growth in nonfood prices accelerated slightly (to 1.6% yoy), fueled by robust consumer demand and the pass-through effects of the weaker exchange rate in previous periods. Prices for pharmaceuticals, furniture and household appliances grew more rapidly. Prices for personal care products and electronics returned to growth. In contrast, the rate of decline in clothing and footwear prices remained at the level of the previous month, while the growth in car prices slowed somewhat.

The growth in raw food prices decelerated further, to 5.1% yoy

Prices for berries increased at a slower pace through an increase in their supply on the Ukrainian market. The larger supply of imported and domestic early vegetables drove their prices down. Egg prices grew more slowly and apple prices continued to fall thanks to the waning effect of the low comparison base.

Meanwhile, milk prices grew more rapidly, driven by higher production costs (such as an increase in feed prices), and declining output. Domestic sugar prices continued to rise on the back of high global sugar prices and the poorer harvest of sugar beet.

Administered prices grew further, to 18% yoy

Natural gas prices for households continued to rise at a fast pace in annual terms, mainly due to the low comparison base. At the same time, prices grew only slightly month-on-month, thanks to the introduction of annual contracts with fixed prices for households.

Higher production costs, in particular higher fuel prices and labor costs, pushed up the prices of transportation services. More specifically, June saw a rise in public transportation fares in several oblast centers. The prices of alcoholic beverages also rose more quickly, driven mainly by higher beer prices.

The growth in fuel prices slowed, to 34.7% yoy

This was mainly due to comparison base effects. Administrative regulations, through the setting of a cap on the trade margins for A-95 petrol and diesel fuel, also played a small role.

The NBU will factor in these and other factors in its revised macroeconomic forecast, which will be made public on 22 July 2021 during a press briefing on monetary policy decision taken by the central bank’s Board. More details of the forecast will be provided in the Inflation Report to be published on 29 July 2021.

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