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NBU April 2021 Inflation Update

NBU April 2021 Inflation Update

In April 2021, consumer inflation slowed in annual terms to 8.4% (from 8.5% in March). In monthly terms, prices grew by 0.7%. This is according to data published by the State Statistics Service of Ukraine. 

Headline consumer inflation came out lower than in the projected trajectory published in the April 2021 Inflation Report. This was primarily due to the slowdown in raw food price growth. However, underlying inflationary pressures, as measured by core inflation, intensified amid sustained demand and higher production costs. 

  • Core inflation accelerated to 6.3% yoy (from 5.9% yoy in March)

As a result of a further increase in global food prices, primarily for sunflower oil, the rise in prices for processed food products accelerated rapidly (to 10.0% yoy). The increase in the cost of raw materials (flour, oil, and sugar), coupled with higher energy costs, supported the increase in prices for mayonnaise, margarine, spreads, bread, and flour products. Butter, cheese, confectionery products, and nonalcoholic beverages became more expensive.

The growth in services prices also picked up (to 7.8% yoy). The growth in prices for catering services, beauty salon services, repairs, housing rentals, and healthcare services sped up, driven by sustained demand and rising production costs. Prices for taxi rides, car services, and driving lessons continued to grow due to stronger demand and higher fuel prices.

In contrast, nonfood prices rose less quickly (by 1.0% yoy). This was due to the fading of the effects of the hryvnia’s weakening last year, as well as the tightening of quarantine restrictions in most regions. Specifically, the rise in prices for pharmaceuticals, cars, and household appliances decelerated. The prices of personal care products, toys, household products, computer hardware, and clothing and footwear also remained below last year’s levels.

  • The growth in raw food prices slowed (to 7.6% yoy)

In particular, the fall in prices for borshch vegetables, primarily potatoes and onions, deepened amid significant stocks left over from last year. Citrus fruits continued to cheapen in year-on-year terms, due to lower external prices. Intensified competition from foreign producers resulted in slower increases in milk prices. In addition, buckwheat and eggs grew in prices at slower annual paces against the backdrop of a high base of comparison.

Meanwhile, chicken prices rose sharply as production costs increased and output fell. Sugar and flour also continued to become more expensive due to high global prices and poorer harvests of sugar beet and wheat.

  • The growth in administered prices accelerated (to 14.4% yoy)

Specifically, prices for natural gas, hot water, and heating supplies continued to rise, albeit mainly due to the low base of comparison. With fuel costs and wages increasing and the quarantine tightening, the prices of automotive and railroad transport went up. At the same time, tobacco products increased in price more slowly, thanks to expanded supply. 

  • The growth in fuel prices continued to pick up (to 24.3% yoy)

Higher fuel prices were supported by rising global oil prices and sustained demand from the population. 

Despite lower-than-anticipated inflation in April, the NBU expects that significant inflationary pressures will persist in the coming months, given strong consumer demand and high global prices, particularly for energy and food.

Inflation will start to slow in the autumn of 2021 to reenter its 5% ± 1 target range in H1 2022, according to the NBU’s forecast (April 2021 Inflation Report). This will be underpinned by the fading of the low comparison base effect, the arrival of newly harvested crops onto the market, and recent decisions by the NBU Board to raise the key policy rate.

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