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NBU April 2022 Inflation Update

NBU April 2022 Inflation Update

In April 2022, consumer inflation accelerated in annual terms, to 16.4%, up from 13.7% in March. In monthly terms, prices grew by 3.1%. This is according to data published by the State Statistics Service of Ukraine.

The main factors accelerating inflation were supply chain disruptions, increased costs of doing business, unevenly distributed demand and supply of goods across regions, and the loss of companies’ assets to the destruction wrought by russia’s full-scale assault. Specifically, the materialization of pent-up demand for goods and services in relatively quiet regions as evacuees gradually came back fueled price increases. Meanwhile, in the cities occupied by the russian invaders and in areas exposed to intense fighting, the limited supply of goods was a significant pro-inflationary factor. 

Core inflation rose to 13% yoy, up from 10.5% yoy in March

The growth in processed food prices accelerated to 19.3% yoy, up from 16.6% yoy in March. Dairy, meat, fish, and flour products became more expensive at a faster pace. The growth in prices for goods with a large share of imported inputs in production costs accelerated as delivery opportunities dwindled and warehouse stocks declined. Those include coffee, tea, juices, chocolate, spices, and dried fruits. The increase in sunflower oil prices continued to slow due to limited export capabilities and the base effect.

Nonfood prices grew faster (by 6.6% yoy in April, compared to 3.6% yoy in March). The rise in prices for medicines and a number of personal care products picked up due to higher production and delivery costs and stronger demand from households for staple goods. The materialization of pent-up demand and limited supply, especially as russian attacks destroyed inventories, led to rising prices for electronics and household goods (cookware, furniture, and appliances). At the same time, the NBU’s fixing of the hryvnia exchange rate, the cancellation of import taxes, and the overall weakening of consumer demand restrained the growth in nonfood prices. In particular, the prices of clothing and footwear continued to decline.

The growth in services prices sped to 12.8% yoy (compared to 11.3% yoy in March). With housing demand in Ukraine’s relatively safe western regions remaining persistently robust, housing rentals increased in price. Housing repair services grew more expensive with the rise in demand as a number of regions were liberated from the russian invaders and housing construction resumed. The prices of taxi rides rose due to fuel shortages and limited traffic in many regions, as did prices for the services of beauty salons, cafes, and restaurants, which charged customers more to meet higher costs and the recovering demand. Meantime, price increases for dry cleaning and medical services remained at the level of March, while prices for movie tickets declined. This is attributable to the reduction in consumer spending on goods other than necessities.

Raw food price increases accelerated significantly (to 25.6% yoy)

The rise in prices for vegetables, including carrots, onions, cucumbers, tomatoes, zucchini, and eggplants, sped up due to supply chain disruptions, higher energy costs, and the temporary occupation of southern areas specializing in vegetable farming. The same factors, made worse by the cessation of imports through ports, accelerated the rise in prices for fruits, including bananas and citrus fruits. Cereals and livestock farming products grew at a faster clip. Those include pork, milk, and fish. By contrast, egg prices fell sharply, owing to the significant supply in the domestic market.

Growth in administered prices accelerated (to 14.2% yoy)

Alcoholic beverages became more expensive due to growing demand amid the easing of restrictions on the sale of these goods and a shrinking supply. The growth in tobacco prices picked up as Ukrainian-based producers scaled back production and more expensive imported products entered the domestic market. Transport services grew in price amid rising fuel prices, as did postal services and pharmaceuticals that fall under state monitoring. Fixed prices for most utilities weighed on the growth in administered prices.

Fuel price growth slowed slightly (to 29.6% yoy)

The abolition of the excise duty on fuel and the reduction of VAT in the second half of March restrained the rise in fuel prices. On the other hand, higher global oil prices, logistical disruptions, the destruction of refineries and fuel infrastructure, and problems with finding new sources of supply pushed fuel prices up.

The rise in consumer inflation in April indicates a further increase in inflationary pressures as the war drags on. Risks of inflation processes intensifying remain significant as russia continues its full-scale war against Ukraine, deliberately destroying food depots, and trade facilities, imposing port blockades, and causing damage to transport infrastructure. The measures taken by the NBU, the Verkhovna Rada, and the Government of Ukraine are intended to curb the growth in prices.

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