NBU June 2024 Inflation Update

In June 2024, consumer inflation accelerated to 4.8% yoy, up from 3.3% in May.
In monthly terms, prices grew by 2.2%.
This is according to data published by the State Statistics Service of Ukraine.
The actual rates of price growth were close the NBU’s target of 5% and came in only slightly below the forecast published in the April 2024 Inflation Report.
As before, the deviation from the forecast was primarily due to raw-food price developments in April-May.
A drop in these prices in annual terms turned out more significant than anticipated, reflecting the impact of last year’s large harvests and warm weather early this year.
Fuel prices grew somewhat more slowly thanks to cheaper-than-expected crude oil.
Underlying inflationary pressures persisted.
Core inflation accelerated to 5.0% yoy in June, up from 4.4% yoy in May.
Such developments were in line with the NBU’s April forecast.
On the one hand, core inflation was driven by further increases in businesses’ expenses on wages and energy and by a certain worsening of inflation expectations, including due to a weakening of the hryvnia exchange rate.
On the other hand, second-round effects from lower prices of raw food products restrained core inflation.
The decrease in raw food prices decelerated slightly, to 6.5% yoy
Specifically, the rate of decline in egg prices plunged, probably due to reduced output and higher production costs because of more expensive power amid a heat wave.
The decline in prices for sugar decelerated somewhat as the geography of its exports expanded.
The fall in flour and cereals prices also came out a bit slower.
Tomato and cucumber prices declined at a slower pace.
Some of the borshch vegetables and apples fell in price due to hot weather and increased sales of warehouse products amid rising storage costs, including due to power supply disruptions.
As livestock farming recovered further, the growth in meat prices continued to slow, making pork notably cheaper.
Price increases for milk also decelerated somewhat.
Because of a limited supply of quality produce, the prices of potatoes and beets remained high, as did those of certain fruits.
The growth in administered prices accelerated significantly, to 13.3% yoy
A revision of power tariffs for households had a substantial inflationary effect and spurred the growth in administered prices.
Additional pressure on prices came from a rise in electricity prices for consumers other than households, as reflected in consumer prices through second-round effects, mainly an increase in production costs.
Tobacco products also grew more expensive, probably thanks to tighter measures to combat shadow market supply.
Prices for pharmaceuticals and healthcare products and equipment increased more quickly, likely due to the exchange rate factor.
Meanwhile, the moratorium on raising utility tariffs for households continued to restrain the increase in administered prices.
The rise in fuel prices accelerated, to 25.5% yoy
These developments reflected the upswing of crude oil prices on global markets, the weakening of the hryvnia, and the pick-up in fuel purchases ahead of an expected increase in the excise tax.
Core inflation picked up, to 5.0% yoy
Price increases for processed foods accelerated to 5.9% yoy.
Specifically, prices for cheese products and butter increased at a higher clip, driven by rising exports of dairy products, the increase in raw materials prices in previous months, and higher production costs.
The growth in prices for bread and certain flour products accelerated due to high costs of labor and energy, as well as flour supply disruptions.
Some imported goods, such as coffee and chocolate, rose in price more quickly.
The fall in sunflower oil prices decelerated on account of price developments in world markets, while the prices of edible-oil-based products, especially margarine, grew faster.
In the meantime, the growth in meat product prices decelerated thanks to second-round effects from a further recovery in livestock farming.
Prices for nonfood products returned to growth (0.4% yoy), likely due to the exchange rate factor.
In particular, prices for footwear and clothing went down more sluggishly, while the growth in the prices of other nonfood products picked up.
Services also grew more expensive, by 9.9 yoy, probably under pressure from businesses’ expenses on wages and energy.
For instance, prices of healthcare, transportation, car maintenance, and insurance increased more rapidly.
In contrast, price increases for hotel, cafe, and restaurant services were lower, primarily due to easing pressure from food raw materials costs, as well as personal care and financial services.
After the inflation trend reversed in May, consumer inflation continued to rise in June, as expected, almost in line with the NBU’s forecast published in the Inflation Report for April 2024.
Inflationary pressures will persist in the coming months, mainly due to increased business costs, including those of labor and power, and because of the fading effects of last year’s ample harvests and the anticipated excise tax hike.

These and other factors will feed into the updated macroeconomic forecast to be released on 25 July 2024 during a press briefing on monetary policy decisions taken by the NBU Board.
A more detailed macroeconomic forecast will be published in the Inflation Report on 1 August 2024.