NBU commentary on the inflation rate in October 2024
In October 2024, consumer inflation accelerated to 9.7% yoy from 8.6% in September. Month-on-month, prices increased by 1.8%. This is according to data published by the State Statistics Service of Ukraine.
The actual rate of price growth accelerated as expected, but exceeded the trajectory of the forecast published in the October 2024 Inflation Report. One of the main factors behind the deviation from the forecast trajectory was a faster-than-expected acceleration in food inflation due to a more significant than expected impact of unfavorable weather conditions on crops and, consequently, a smaller supply of food. Administratively regulated prices and fuel prices also grew somewhat faster than expected.
Underlying inflationary pressures also increased more than expected. Thus, core inflation rose to 8.3% in October from 7.3% in September. This development was primarily driven by a faster rise in processed food prices, driven by higher food raw material costs, as well as further increases in business costs for electricity and labor.
The growth in raw food prices accelerated significantly to 10.5% yoy.
Hot weather without rain in the summer and early fall of this year affected the yields, ripening time, and quality of a number of vegetables and fruits, which affected their supply. In particular, the price of borscht vegetables and most fruits rose faster. Prices for tomatoes and cucumbers also remained higher than last year, although their growth slowed in October.
Higher prices for raw materials, feed, and production costs, including energy, affected prices for flour, cereals, milk, and meat. The same factors are likely to have contributed to the year-on-year decline in egg prices, which slowed significantly. On the other hand, the decline in sugar prices accelerated due to the active processing of newly harvested sugar beet.
The growth rate of administratively regulated prices accelerated slightly to 14.5% yoy.
Alcohol and tobacco products rose more rapidly, including due to the hryvnia's depreciation in previous months and the fight against shadow products. Prices for pharmaceuticals, medical goods, and equipment accelerated. As before, administrative inflation was restrained by the moratorium on raising tariffs for certain housing and utility services for households.
Fuel price growth slowed sharply to 3.2% yoy
Supply on the fuel market continued to be plentiful, despite a brief rise in raw material prices in the first half of October.
Core inflation rose to 8.3% yoy
The rise in prices for processed food products accelerated sharply to 10.7% yoy. Prices for bread, some flour products, and some confectionery products increased due to higher production costs. Prices for most fermented dairy products, cheeses, and butter continued to rise, driven by a limited supply of raw milk, higher purchase prices and production costs, and increased exports of commodities. Certain imported goods, such as coffee and chocolate, rose faster. Sunflower oil prices resumed their growth, driven by a rise in prices on global markets and a limited supply of newly harvested raw materials. Increased pressure from production costs led to a faster growth in the price of meat products.
Nonfood prices accelerated their growth (by 2.9% yoy), primarily due to the impact of the exchange rate factor in previous periods. This probably also contributed to a slowdown in the decline in prices for clothing and footwear.
Services also grew somewhat faster, by 11.0% yoy. Prices for health care, communication, and personal care services grew more rapidly. On the other hand, the growth in the cost of transportation services and the operation of private vehicles, as well as insurance, slowed.
In the coming months, inflationary pressures will persist due to a smaller supply of certain food products than last year, an expansion in aggregate demand due to significant budget spending, high wage growth, and a shortage of electricity during the heating season.
In its October forecast, the NBU expected inflation to exceed 10% in January 2025, but recent actual data have increased the risks that this could happen earlier. At the same time, the NBU continues to expect that inflation will begin to decline next spring, reaching 6.9% by the end of 2025 and continuing to move toward the NBU's 5% target. This will be facilitated by the NBU's interest rate and exchange rate policies, as well as by an increase in food supply and an easing of external price pressure.