NBU commentary on the inflation rate in November 2024

In November 2024, consumer inflation accelerated to 11.2% yoy from 9.7% in October. Month-on-month, prices increased by 1.9%. This is according to data published by the State Statistics Service of Ukraine.

The actual price growth rate exceeded the trajectory of the forecast published in the October 2024 Inflation Report. One of the main factors behind the faster inflation was the continued acceleration in food prices. Lower-than-expected harvests of certain crops led to a reduction in their supply and a rise in the price of raw materials for the food industry. Administratively regulated prices also grew somewhat faster than expected.

Underlying inflationary pressures also increased more than expected: the core inflation rate rose to 9.3% in November from 8.3% in October. This development was driven by a faster rise in processed food prices, driven by higher raw food costs, and by further increases in business costs related to energy, labor, and the effects of the devaluation in previous periods.

The growth in raw food prices accelerated sharply to 15.7% yoy.

Hot summers and autumns with long periods of no precipitation had a negative impact on the yields, ripening, quality, and supply of a number of fruits and vegetables. As a result, borscht vegetables, cucumbers, and apples rose in price at a faster pace. There was also increased pressure from production costs, in particular electricity to store finished products in retail chains and storage facilities.

Increases in the cost of raw materials, feed, and production costs, including energy, affected prices for flour, cereals, milk, eggs, and meat.

Core inflation rose to 9.3% yoy

The rise in prices for processed food products accelerated sharply to 12.5% yoy. Prices for bread, flour, and confectionery increased due to higher production costs. Dairy products continued to rise in price, driven by higher purchase prices for raw milk and production costs, as well as by growing demand from European traders for Ukrainian butter. Certain imported goods, such as coffee, tea, chocolate, fish, and seafood, rose faster. Prices for sunflower oil rose rapidly, driven by a rise in global prices and strong export demand. Increased pressure from production costs led to a faster growth in the price of meat products.

Nonfood prices accelerated their growth (by 3.6% yoy), primarily due to the impact of the exchange rate factor in previous periods. This probably also contributed to the slowdown in the decline in clothing and footwear prices.

Services also grew somewhat faster, by 11.2% yoy. In particular, prices for financial and communication services, education, culture, and recreation, restaurants and hotels, and personal care 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.

The growth rate of administratively regulated prices accelerated to 15.1% yoy.

Prices for alcohol and tobacco products rose more rapidly, including due to exchange rate effects in previous months and the fight against shadow products. The increase in excise taxes on tobacco products starting January 1, 2025 may also motivate producers and importers to raise prices in advance. The growth in 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 0.6% yoy

Demand in the fuel market continued to remain subdued amid ample supply and a mostly downward trend in global oil prices.

In the coming months, inflationary pressures will persist due to a smaller supply of certain food products than last year, high budget expenditures, high wage growth, and a shortage of electricity during the heating season. At the same time, the NBU expects that next year inflation will gradually return to a downward trajectory and continue to approach the NBU's 5% target. This will be facilitated by a gradual improvement in the energy sector, the expected increase in harvests, an easing of external price pressure, and the NBU's interest rate and exchange rate policies.