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NBU June 2022 Inflation Update

NBU June 2022 Inflation Update

In June 2022, consumer inflation accelerated to 21.5% yoy, up from 18% in May. In monthly terms, prices grew by 3.1%. This is according to data published by the State Statistics Service of Ukraine.

The rise in inflation was mainly driven by supply shocks caused by the full-scale war. This included the disruption of supply chains, a decrease in supply of some goods, higher business expenses, and physical destruction of production facilities and infrastructure as a result of russia’s terrorist attacks and occupation of some territories. Inflation expectations of the majority of economic agents deteriorated, putting additional pressure on prices. 

Price growth was restrained by fixing the official UAH/USD exchange rate and natural gas and heating tariffs and by a partial recovery in supplies.

Core inflation accelerated to 15.2% yoy, up from 13.8% in May

Prices for processed food rose more quickly, by 21.5% yoy, as a result of an increase in production costs, in particular energy prices and the cost of logistics. For example, prices grew for meat and fish products, butter, margarine, flour products, and nonalcoholic beverages. In contrast, sunflower oil prices grew more slowly due to base effects and larger supply amid limited export capabilities.

The growth in nonfood prices accelerated to 9.2% yoy. This was explained by higher logistics costs and increased demand for nonfood goods, driven, in part, by Ukrainians gradually returning home. Prices grew more rapidly for household items (such as kitchenware, furniture, and home appliances), electronic devices, cars, pharmaceuticals, and personal care products. Clothing and footwear prices declined at a slower pace. 

Services prices grew more rapidly as well (by 14.3% yoy). Housing rentals continued to rise, propelled by high demand in relatively safe regions. Services related to housing repairs also became more expensive due to the shortage of workers and some materials. Taxi fares rose on the back of higher fuel prices. Prices for medical services and the services of beauty salons, cinemas, sports facilities, and restaurants also grew at a faster pace. On the other hand, the growth in the prices of services provided by hotels and resorts was slower as the tourist season did not open this year.

The growth in raw food prices accelerated notably (to 36.1% yoy)

Prices of buckwheat, rice, and other cereals rose significantly due to depletion of inventories and a decrease in supplies. Salt prices grew more rapidly as shortages on the domestic market were caused by the closure and subsequent destruction of Ukraine’s main salt mining enterprise. Prices of vegetables, fruit, and berries grew faster on the back of disrupted supply chains and higher energy prices. An increase in exports and domestic demand spurred growth in sugar prices. A gradual revival of exports also contributed to a slower decline in egg prices and faster growth in the prices of chicken meat and milk. Pork prices also rose more rapidly due to decreased supply from eastern and central oblasts.

Administered prices grew at a faster pace (14.8% yoy)

A major contribution to the growth in administered prices came from a rise in the prices of alcoholic beverages, which was caused by an increase in demand driven by looser alcohol sales restrictions in various regions of Ukraine and weaker supply. The decease in supply resulted from limited imports, higher production costs incurred by domestic producers, and a shortage of packaging. Price growth of road transportation services also accelerated considerably on the back of higher fuel prices. On the other hand, public utility rates grew more slowly.

The growth in fuel prices accelerated rapidly (to 90.9% yoy)

This was attributed mainly to high crude oil prices, fuel shortages, and increased logistics costs.

The further acceleration of consumer inflation indicates an increase in inflationary pressures as the war drags on. The risks that inflation processes might accelerate and expectations might worsen remain high as russia is blocking ports, damaging transport infrastructure, and intentionally destructing production facilities and warehouses.

All of these factors will be taken into account in monetary policy decisions and in the updated macroeconomic forecast to be published on 21 July 2022, during a press briefing on decisions taken by the NBU Board. А more detailed macroeconomic forecast will be published in the Inflation Report on 28 July 2022.

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