Comment of the National Bank on the level of inflation in March 2023


In March 2023, consumer inflation in annual terms (y/y) continued to slow down to 21.3% from 24.9% in February. In monthly terms, prices increased by 1.5%. This is evidenced by the data published by the State Statistics Service of Ukraine.

The actual rates of price growth were lower than the trajectory of the forecast of the National Bank, published in Inflation report for January 2023. The sharp decrease in inflation is associated with a significant supply of food and fuel, a better situation in the energy sector, an improvement in inflationary expectations and a favorable situation in the cash segment of the foreign exchange market. At the same time, the slowdown in inflation is also largely explained by the effects of the comparison base of the previous year.

Core inflation decreased to 19.8% y/y in March from 22.7% y/y in February

Appreciation processed food products slowed down significantly (to 23.5% y/y). As in February, this was largely due to a better-than-expected energy situation. Thus, the prices of bread and flour products, confectionery, soft drinks and canned goods grew at a lower rate. In conditions of sufficient supply on the domestic market and a decrease in export prices, the cost of dairy products and sunflower oil grew more slowly. The improvement of exchange rate expectations, in particular against the background of the strengthening of the hryvnia cash rate, contributed to the decrease in the rate of increase in the price of imported products.

Rising prices for non-food products also slowed down significantly (18.8% y/y). On the one hand, such dynamics were expected due to the effects of the comparison base of the previous year. On the other hand, prices for personal care products, clothing and footwear, electronics, pharmaceutical products, furniture, household appliances, and cars grew more slowly due to the improvement of exchange rate and inflationary expectations.

Rate of growth of value services almost did not change (15.4% y/y). Tourist services, services of public catering establishments and hotels, as well as rent increased in price more slowly. This may be due to improved energy supply, weaker demand, and high base-of-comparison effects created by large-scale population movements at the onset of a full-scale invasion. Instead, the cost of medical, insurance, veterinary, telecommunications and beauty salon services grew faster – under the influence of increased costs and less supply against the background of a gradual recovery in demand. Also, considering the maintenance of high demand, the price of the services of electricians and plumbers accelerated.

The growth rate of raw food prices decreased to 31.6% y/y

Milk prices grew more slowly due to sufficient supply amid weak demand and lower world prices. The prices of flour, cereals and sugar rose at a lower rate, considering the harvests last year, which were sufficient to meet domestic demand. Slowed down the growth of the cost of meat due to the effects of reduced feed prices and weak demand. A decrease in import prices and a favorable situation on the foreign exchange market led to a slowdown in the price increase of citrus fruits and bananas.

At the same time, the prices of greenhouse vegetables and carrots increased at a higher rate, while the rate of decline in cabbage prices decreased. This is primarily due to the exhaustion of the temporary effects of warm weather in the winter months.

The increase in administratively regulated prices slowed to 13.5% y/y

Under the influence of sufficient import supply and the strengthening of the hryvnia cash rate, the prices of tobacco products and alcoholic beverages increased more slowly, the latter also due to weaker demand. The growth of prices for transport services slowed down thanks to the stabilization of fuel prices. The moratorium on raising tariffs for housing and communal services for the population continued to restrain administrative inflation.

The rate of increase in fuel prices decreased significantly – up to 27.9% y/y

This is explained by the presence of significant reserves and the decrease in world oil prices.

For the third month in a row, inflation is slowing faster than the NBU’s forecast due to the preponderance of food supply over demand, a better situation in the energy sector, as well as the NBU’s consistent monetary policy aimed at maintaining exchange rate stability and increasing the attractiveness of hryvnia savings. The improvement in inflation and exchange rate expectations additionally contributes to the easing of fundamental inflationary pressure. At the same time, risks for inflationary dynamics remain primarily due to the high level of uncertainty associated with the war.

All these factors will be taken into account when making monetary policy decisions and in the updated macroeconomic forecast, which will be presented on April 27, 2023 during press briefing of the NBU Board on monetary policy. The National Bank will publish a more detailed macro forecast on May 4, 2023 in the traditional Inflation report.

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