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NBU July 2022 Inflation Update

NBU July 2022 Inflation Update

In July 2022, consumer inflation accelerated to 22.2% yoy, up from 21.5% in June. In monthly terms, prices grew by 0.7%. This is according to data published by the State Statistics Service of Ukraine.

The growth in inflation in Ukraine is primarily due to the consequences of russia’s terrorist actions and the temporary occupation of certain territories. The fallout from russia’s war against Ukraine includes supply chain disruptions, the destruction of production facilities and infrastructure, the reduction of supply, an increase in production costs, and significant forced migration within Ukraine. Price growth has been restrained by the fixing of natural gas and heating prices and a partial rerouting of supply chains.

Actual consumer inflation accelerated as expected, but was slightly below the trajectory of the baseline forecast published in the July 2022 Inflation Report. The deviation from the forecast was driven by slower-than-expected increases in prices for fuel, fruits, and certain vegetables, owing in part to increased supply.

Core inflation accelerated to 16.7% yoy from 15.2% yoy in June

The growth in processed food prices sped to 22.6% yoy. Meat and fish products, butter, margarine, confectionery, and nonalcoholic beverages grew more expensive. Sunflower oil prices grew at a higher rate amid expectations for an intensification of exports and high global prices for this product.

The growth in prices for nonfood products picked up (to 11.7% yoy). Those include cars, household goods (kitchenware, furniture, home appliances), electronics, pharmaceuticals, and personal care products. The decline in prices for clothing and footwear slowed. This was due to the drawdown of old stocks, a limited supply of new goods, and increased logistical costs, as well as the materialization of pent-up demand as citizens gradually made their way back to their places of residence. Prices for nonfood products were partially impacted by the increase in the prices of imported inputs due to the adjustment of the official exchange rate of the hryvnia against the U.S. dollar – a measure intended to make the Ukrainian economy more stable. Nonfood prices also reflected the termination of the preferential period for car imports.

The growth in services prices accelerated to 14.9% yoy. Telecommunication and medical services and the services provided by beauty salons, gyms, dry cleaners, and cafes and restaurants became more expensive. The prices of services related to housing repairs continued to grow at a higher rate amid strong demand from individuals returning to their homes and a shortage of certain inputs and labor. In contrast, the increase in housing rents and hotel and boarding house prices decelerated materially. This was due to the weakening of demand for such services as people gradually returned to their places of permanent residence, and because of the absence of tourism.

The growth in raw food prices accelerated to 37.5% yoy

Cereals rose in price at a faster pace due to the depletion of stocks and a contraction in supplies. The growth in egg prices resumed, driven by higher production costs of businesses, including more expensive energy. Price increases for pork accelerated rapidly as pig numbers fell. Prices for vegetables, especially those used in the cooking of borshch, grew at a higher clip due to supply chain disruptions and higher costs. Meanwhile, the growth in fruit prices decelerated against the backdrop of increased supply.

Thanks to the expansion of supply, including from households, the growth in prices for seed vegetables and fruits was slower than the NBU expected. 

The rate of growth in administered prices was little changed from June (14.7% yoy)

On the one hand, prices for alcoholic beverages continued to rise due to the increase in demand amid an easing of restrictions on the sale of alcohol in various regions of Ukraine and a shortage of containers. Prices for tobacco products continued to grow as businesses closed production facilities located in the battle zone. Prices for motor vehicle transport services also increased amid high fuel prices.

On the other hand, the growth in utility prices continued to slow. This was because of the fading of the base effect due to fixed prices.

Fuel price growth decelerated to 77.7% yoy

The main reason was the gradual saturation of the market as businesses rerouted their supply chains and competition revived.

The growth in consumer prices in July came out slower than the NBU projected. High core inflation, however, indicates that significant underlying inflationary pressures persisted. Inflation will accelerate until the end of 2022 and will start to decrease at the beginning of 2023, according to the NBU’s forecast. At the same time, the risk that inflationary processes may intensify remains significant due to elevated uncertainty about the duration of the war and the associated deterioration of inflationary expectations.

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