Inflation in Ukraine: How prices have risen and what makes them rise further

Author

Valery Moiseev

In May, annual consumer inflation accelerated to 18% from 16.4% in April, 13.7% in March, 10.7% in February, and 10% in January. Such data are provided by the State Statistics Service.

In May (on a monthly basis), prices rose by 2.7%, while in April the growth was 3.1%, in March — 4.5%, in February — 1.6%, and in January — 1.3%.

Since the beginning of this year, the inflation rate has been 13.9%.

Recall: the State Statistics Service estimates inflation based on an price analysis of a set of goods and services that are determined by the government as a consumer basket.

The current accelerating inflation results from both global trends, in particular high energy prices, and internal factors, primarily related to the war, according to the National Bank. These includes:

disruption of supply chains;
destruction of enterprise assets;
rising production costs;
increased demand of the population for certain goods and services amid insufficient supply.

How certain categories of goods to rise in price

The increase in the price of processed food products accelerated to 20.1% in annual terms. Prices for dairy and fish products, as well as non-alcoholic beverages, grew at a faster pace. At the same time, the increase in oil prices slowed down, in particular due to limited export opportunities. Prices for meat products grew more slowly as a result of shrinking sales markets and cheaper raw materials.

The growth rate of prices for non-food products increased to 7.3%. First of all, household goods (kitchenware, furniture, and household appliances), electronics, cars, and personal care goods rose in price. This may be due to the limited supply of these goods, given the difficulties in their supply and the physical destruction of warehouses, as well as an increase in demand for them amid the return of citizens to their places of residence and the need to rebuild houses.

Rising prices for pharmaceutical products have stalled due to the partial tailoring of supplies.

Price dynamics compared to the previous month, %

Housing rental and hotel accommodation rose in price amid continued strong demand in the relatively safe western regions. The cost of housing repair services has increased due to the partial resumption of housing construction and the need to restore housing in the liberated territories, as well as due to the continued shortage of some materials.

Influenced by the demand resumption, the services of beauty salons, cinemas, sports facilities, and catering establishments rose in price. The cost of taxi services has increased due to the rise in price of fuel and its shortage.

The increase in the price of vegetables, in particular cucumbers, tomatoes, zucchini, and eggplant, is due to the occupation of the southern regions of Ukraine, the disruption of supply chains, and the rise in energy prices. Price increases for other vegetables and fruits slowed down, but their cost remained higher than that in the past due to lower early production volumes.

Cereals, including buckwheat and rice, rose significantly in price due to the depletion of stocks and reduced supplies. The rise in the cost of salt accelerated primarily due to the destruction of the main salt mining enterprise and limited import supplies.

At the same time, egg prices were declining due to abundant supply in the domestic market. Due to the excess of agricultural raw materials, feed became cheaper, which slowed down the rise in meat prices. Milk also rose in price at a slower pace.

The growth rate of fuel prices increased rapidly to 57.5%. This is primarily due to high oil prices, fuel shortages, and rising logistics costs.

What happens to inflation next

The dynamics of consumer inflation in May indicates a further increase in price pressure, according to the NBU. Inflationary risks remain significant in the context of the continuing war and the targeted destruction of Ukrainian food warehouses, trading establishments, blocking ports and transport infrastructure by Russia.

Taking this into account, the National Bank raised the discount rate from 10% to 25% per annum on June 3. It is believed that this will allow the regulator to maintain exchange rate stability, which, among other things, will curb the rise in prices for imported goods and help slow down inflation.

Also, an increase in the rate may result in an increase in the yield of deposits and government bonds, so people are more likely to take money to the bank or buy government bonds than spend it on the purchase of non-essential goods. A decrease in demand for goods will also have a positive effect on inflation.

Anticipating the level of inflation, Kateryna Rozhkova, First Deputy Governor of the NBU, said: "We, as the National Bank, are talking about our estimative vision of what inflation will be like. This year it may exceed 20%."

Inflation in most countries is now above the target level