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NBU May 2021 Inflation Update

NBU May 2021 Inflation Update

In May 2021, consumer inflation accelerated to 9.5% yoy (up from 8.4% in April). In monthly terms, prices grew by 1.3%. This is according to data from the State Statistics Service of Ukraine.

Consumer inflation came out higher than in the projected trajectory published in the April 2021 Inflation Report. This was primarily due to the highly volatile components of the consumer basket, in particular the significant rise in prices for natural gas and sunflower oil. 

Core inflation accelerated to 6.9% yoy in May (up from 6.3% yoy in April).

Price increases for processed food products sped up (to 11.2% yoy), driven primarily by sustained growth in global prices for certain foods. Specifically, prices for sunflower oil and related products (mayonnaise, margarine, spreads) grew faster. Rising costs of raw materials and energy pushed the prices of bread, pasta, confectionery, and meat products higher. The increase in core inflation was also fueled by sustained consumer demand. 

Services price growth accelerated (to 8% yoy). Public catering services, culture and recreation services, housing rentals, housing maintenance and repair services, foreign language lessons, and mobile communication services grew in price more quickly. Prices for driving lessons and car maintenance services continued to rise in response to strong demand, while taxi fares increased because of more expensive fuel. In contrast, the growth in the prices of personal care, financial, and tourism services decelerated. 

Spurred by sustained demand from households, the growth in nonfood prices accelerated (to 1.4% yoy). Pharmaceuticals, furniture, and household appliances increased in price at a higher pace, while the decline in prices for clothing, footwear, personal care products, and computer equipment slowed. 

The growth in raw food prices continued to slow (to 7.1% yoy).    

Potatoes became cheaper, while onion prices remained at half the levels of a year ago, thanks to significant stocks left over from last year’s harvest and the expansion of supply (both imported and Ukrainian). The latter factor also contributed to a drop in tomato and cucumber prices in year-on-year terms. Citrus fruits fell in price compared to the previous year, while the increase in prices for apples and eggs slowed as the effects of the low comparison base faded. 

At the same time, the rise in the prices of some raw foods accelerated. Specifically, meat prices were up significantly, due to costlier feed. The drop in production, coupled with rising global prices, drove milk prices up. Sugar prices also increased due to high global prices and last year's poor sugar beet yields. 

The growth in administered prices accelerated (to 17.3% yoy).

Natural gas prices for households surged in the wake of rising global prices and because of the low base of comparison. The growth in prices for transport services also picked up, primarily due to higher fuel costs and wages. At the same time, with electronic cigarettes gaining more popularity, the rise in prices for traditional tobacco products decelerated. 

The growth in fuel prices accelerated (to 37.4% yoy).

This was driven by rising global oil prices and sustained strong demand from the public. 

Inflation pressures will persist in the coming months, mainly due to high global prices, in particular for energy and food. According to the forecast published in the April 2021 Inflation Report, inflation will return to its 5% target in 2022. This will be driven by the fading of the low comparison base effect, the arrival of newly harvested crops onto the market, and the relevant monetary policy. 

The NBU will make public its new macroeconomic forecast on 22 July 2021 during a press briefing on decisions taken by the central bank’s Board. More details of the forecast will be given in the Inflation Report to be published on 29 July 2021.

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