NBU commentary on the inflation rate in February 2024

In February 2024, consumer inflation slowed to 4.3% yoy from 4.7% in January. Month-on-month, prices rose by 0.3%. This is according to data published by the State Statistics Service of Ukraine.

The actual rate of price growth was lower than the trajectory of the NBU's forecast published in the January 2024 Inflation Report. Raw food prices fell, and prices for fuel, alcoholic beverages, and tobacco products grew at a slower pace. At the same time, underlying inflationary pressures, as reflected in core inflation, eased less markedly in February than the NBU had expected. This was due in part to the effects of the blockade of the western borders, which caused some food and non-food products to rise in price. Prices were also pressured by a gradual increase in wages amid a labor market shortage.

Raw food prices decreased by 0.3% yoy

Eggs fell significantly in price year-on-year due to increased production and producers' reorientation to the domestic market. The effects of last year's bumper harvests supported further price reductions in sugar, cereals, and flour. The price of greenhouse produce, particularly tomatoes and cucumbers, declined. The rise in prices for meat, particularly pork and poultry, slowed. Due to warm weather and increased sales of products from storage, the price of certain borscht vegetables rose more slowly. In contrast, the price of potatoes and apples remained high due to a limited supply of quality products. The growth in raw milk prices accelerated slightly due to a reduction in the supply of imported products.

The growth rate of administratively regulated prices slowed to 10.1% yoy.

Alcoholic beverages and tobacco products continued to rise more slowly as production cost pressures and pressure from illegal products eased.

The moratorium on increases in utility tariffs for households continued to restrain administrative inflation. On the other hand, prices for pharmaceuticals accelerated.

Fuel prices increased by 5.0% yoy

Fuel prices resumed their growth in February. This was driven primarily by logistical difficulties, which affected primarily the price of automotive gas, and by rising global oil prices.

Core inflation declined to 4.5% yoy

The rise in prices for processed food products accelerated slightly (to 5.6% yoy). In particular, dairy products grew more rapidly. This may be a result of the border lockdown, which led to a smaller supply of imported products, additional logistics costs, and shorter sales periods for these goods. Long-term storage goods, such as coffee, tea, and culinary herbs, also grew more rapidly. At the same time, prices for bread, flour, and confectionery products grew more slowly. Prices for sunflower oil continued to decline, but prices for processed products accelerated.

Prices for non-food products continued to decline (by 0.5% yoy), mainly due to a deepening drop in prices for clothing and footwear. At the same time, prices for other non-food products grew more slowly than in January, which may be explained, in part, by the controlled situation on the FX market.

The growth rate in the cost of services slowed to 9.8% yoy in February, primarily due to lower pressure from food and energy costs. Thus, the growth in the cost of certain medical, transportation, telecommunications, insurance, cinemas, and other services slowed. Instead, financial services, the cost of operating personal vehicles, and personal care services grew more rapidly, including due to pressure from labor costs.

In February, inflation decelerated faster than forecast. This dynamics was driven by an increase in the supply of certain food products, secondary effects from a bumper harvest, a controlled FX market, and the continued moratorium on raising utility tariffs. At the same time, core inflation declined more slowly than forecast under pressure from a decline in the supply of imported goods and higher labor costs.

The better-than-expected inflation dynamics and favorable FX market conditions create preconditions for easing interest rate policy. At the same time, the NBU should act cautiously, as the risks of increased inflationary pressures remain, primarily due to the impact of the war. The NBU will continue to pursue a policy aimed at maintaining moderate inflation.