Commentary of the National Bank on the level of inflation in February 2023


In February 2023, consumer inflation continued to decelerate in annual terms (y/y) to 24.9% from 26.0% in January. In monthly terms, prices increased by 0.7%. 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, as a result of a larger than expected supply of food and fuel, as well as a better energy situation. Inflation was also restrained by the improvement of inflationary expectations and a favorable situation in the cash segment of the foreign exchange market, including thanks to the measures taken by the NBU. These factors offset the effects of higher business costs incurred, in particular, to ensure business continuity during power outages.

Core inflation slowed to 22.7% y/y in February from 23.2% y/y in January

Appreciation processed food products significantly slowed down (to 27.8% y/y) primarily due to the stabilization of the situation in the energy sector and the reduction of business costs. Thus, the prices of bread and flour products, soft drinks, and canned goods grew at a lower rate. Given the better situation in the energy sector and the decrease in export prices, the cost of dairy products and sunflower oil grew more slowly. The strengthening of the hryvnia in the cash segment of the foreign exchange market slowed down the price increase of imported products.

Rising prices for non-food products practically remained at the level of the previous month (22.2% y/y). The increase in the prices of these goods was restrained by the improvement of inflation expectations, including due to the favorable situation in the cash segment of the foreign exchange market, as well as weak and unevenly distributed consumer demand by goods and regions. Prices for certain personal care products, electronics, pharmaceutical products, furniture and cars grew more slowly. In contrast, prices for household goods, clothing and footwear accelerated, reflecting increased business spending in previous months to ensure energy autonomy.

Rate of growth of value services also almost did not change (15.6% y/y). Tourist services, catering services, hotels, and cinemas rose in price more slowly, which can be explained both by weaker demand and by an improvement in the energy supply situation. On the other hand, the cost of medical, insurance, veterinary, telecommunication services grew at a higher rate – under the influence of increased costs. The increase in the price of electricians and plumbers services also accelerated due to the continued high demand due to the effects of power outages.

The growth rate of raw food prices decreased to 38.0% y/y

The prices of flour and cereals increased at a lower rate, considering the better than expected harvests. The growth of meat prices has slowed due to lower feed prices and weak demand. Lower import prices restrained the increase in the price of citrus fruits. The de-occupation of part of the Kherson region last year and the subsequent adjustment of supplies to the region also restrained the increase in the cost of raw food products.

At the same time, prices for vegetables, in particular onions, carrots and greenhouse vegetables, grew at a higher rate due to a reduction in supply due to a low harvest. The latter became more expensive also in view of the increase in business costs in the previous months due to the shortage of electricity, as well as the consequences of the earthquake in Turkey. In addition, the price of eggs accelerated.

The increase in administratively regulated prices slowed down to 14.4% y/y

Alcoholic beverages rose in price more slowly under the influence of weaker demand and sufficient import supply. The growth of prices for transport services also slowed down thanks to the stabilization of fuel prices. The moratorium on raising tariffs for housing and communal services for the population also curbed administrative inflation. On the other hand, in view of the planned increase in excise duties, the increase in the price of tobacco products expectedly accelerated.

The rate of increase in fuel prices decreased significantly – up to 42.0% y/y

This is primarily explained by the decrease in global oil prices in annual terms. A reduction in electricity shortages and fuel demand, including due to warm weather and stocks accumulated by citizens and businesses, also had a significant impact.

Inflation is slowing down for the second month in a row. The decline in inflation began earlier and is happening faster than the January forecast of the National Bank predicted. At the same time, there are risks of increased inflationary pressure due to high security risks and the temporary nature of certain factors that caused inflation to deviate from the forecast.

In order to minimize risks and ensure a steady decrease in inflation, the National Bank will continue to keep the discount rate at 25% and take additional measures to increase the attractiveness of hryvnia assets and maintain exchange rate stability.

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