NBU May 2024 Inflation Update

In May 2024, consumer inflation accelerated slightly year-on-year (yoy), to 3.3%, up from 3.2% in April.
In monthly terms, prices grew by 0.6%.
This is according to data published by the State Statistics Service of Ukraine.
The actual rates of price growth were below the trajectory of the NBU’s forecast published in the April 2024 Inflation Report.
Deviations from the forecast continued to be shaped by the dynamics of prices for raw food products.
Raw food prices fell more sharply than expected.
This was driven by the effects of this year’s warm weather as well as by eased pressure on business costs as raw materials fell in price due to last year’s ample harvests.
Fuel prices also grew more slowly on the back of lower crude oil prices.
A decline in prices for alcoholic beverages resumed due to reduced pressure from raw material and administrative costs.
At the same time, underlying inflationary pressures remained persistent.
Core inflation stood at 4.4% in May.
Such dynamics were in line with the trajectory of the NBU’s April forecast.
On the one hand, this was supported by further increases in businesses’ expenses, including on labor and electricity.
On the other hand, second-round effects from lower prices of raw food products and relative resilience of inflation expectations were the restraining factors.
Prices for raw food products continued to plunge, by 6.6% yoy
Specifically, egg prices continued to decline due to the growth in production, the shift of producers to the domestic market, and effects of a lower pressure from animal feed costs.
Thanks to last year’s high harvests and limited opportunities for exports amid the border blockade, the prices of sugar, flour, and cereals continued to decrease.
An increase in supply from local greenhouses deepened the fall in prices of tomatoes and cucumbers.
Prices for some of the borshch vegetables also dropped due to warm weather and larger sales from warehouse stocks.
The latter factor is likely to have driven the decline in apple prices.
Meat prices grew more slowly, while pork prices continued to decrease thanks to further recovery in the animal farming sector and reduced pressure on business costs, especially expenses on feed.
The growth in milk prices decelerated.
By contrast, the prices of potatoes and beetroot remained high due to the limited supply of quality products, same as prices for some fruits.
The increase in administered prices slowed to 9.4% yoy
The decline in prices for alcoholic beverages resumed due to lower pressure from businesses’ expenses on raw materials and administrative costs, as well as due to competition from shadow market supply.
On the other hand, prices for tobacco products grew slightly faster.
The moratorium on raising utility tariffs for households continued to restrain the increase in administered prices.
In contrast, prices for pharmaceuticals and healthcare products and equipment grew more quickly.
The growth in fuel prices accelerated, to 22.5% yoy
These dynamics reflected the drawdown of stocks, the weakening of the hryvnia exchange rate, and the rise in crude oil prices on global markets. 
Core inflation stood at 4.4% yoy
Prices for processed foods rose somewhat more slowly (by 5.3% yoy).
For example, prices for cheese and meat products increased at a slower pace due to second-round effects from lower prices for respective raw foods.
Sunflower oil prices continued to drop, and prices for oil-based products grew at a slower rate.
On the other hand, the growth in prices for bread and certain flour products accelerated due to high costs of labor and energy.
Some imported goods, such as chocolate, also rose in price faster.
Prices of non-food products decreased more slowly (by 0.3% yoy), which was likely due to the exchange rate factor.
The decline in prices for clothing and footwear persisted, whereas prices for other non-food products rose slightly faster.
Service prices remained unchanged from April (9.7% yoy).
On the one hand, the pressure from expenses on food raw materials decreased.
In particular, the growth in prices of eating out continued to slow.
On the other hand, labor costs put pressure on service prices.
For example, prices of healthcare services, transportation services, and car maintenance grew more rapidly.
Consumer inflation rose slightly in May, but remained below the NBU"s forecast and target range. At the same time, the trajectory of core inflation was in line with the NBU"s forecast.
In the coming months, consumer price growth is expected to accelerate somewhat due to higher electricity prices, probably slightly lower harvests, and further increases in business costs, including labor costs. At the same time, inflation will be restrained by the weakening of external inflation pressure and by monetary policy measures, including steps to keep the FX market situation under control and protect household savings from losing value due to inflation.
Monetary policy measures will continue to aim to keep inflation moderate this year and return it to its target range of 5% ± 1 pp in the coming years.