In January 2023, consumer inflation in annual terms (y/y) slowed to 26.0% (in December 2022 – 26.6%). In monthly terms, prices increased by 0.8%. 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 deviation from the forecast is primarily due to a larger than expected supply of raw food products.
In addition, inflation was restrained by such factors as a stable situation on the foreign exchange market and improvement in inflation expectations, including thanks to the measures taken by the National Bank of Ukraine, as well as the further positive impact of the de-occupation of some regions of Ukraine.
On the other hand, fundamental inflationary pressure, expressed by the core inflation index, increased in January, although somewhat less than the NBU expected. The main reason for such dynamics is the further growth of business production costs, in particular due to the shortage of electricity.
Core inflation in January 2023 increased to 23.3% y/y from 22.6% y/y in December 2022
Appreciation processed food products slightly accelerated (up to 29.6% y/y). Against the backdrop of a shortage of electricity, the prices of products with energy-intensive production: meat and oil products, butter, confectionery, soft drinks and canned goods grew faster. The increase in the price of imported food products for long-term storage also accelerated due to higher demand and increased business costs, in particular logistics. Sunflower oil also rose in price faster against the backdrop of higher export prices. On the other hand, thanks to the decrease in the cost of raw materials, the prices of pasta grew at a lower rate. Dairy products also became more expensive due to the decrease in world prices and sufficient supply on the domestic market.
Rising prices for non-food products accelerated as expected (up to 22.3% y/y). In particular, the prices of clothes and shoes, medicines, personal care products, household goods, electronics and cars increased at a higher rate. This is due to the further depletion of stocks of imported products purchased before the July adjustment of the official exchange rate, and to the increase in business costs, in particular due to the need to purchase energy products and fuel for autonomous operation. At the same time, the stable situation in the cash segment of the foreign exchange market, improvement in inflationary expectations and weak and uneven demand restrained the growth of prices for this category of goods.
Rate of growth of value services increased (up to 15.5% y/y). Medical, insurance and veterinary services, public catering services, Internet and cable TV became more expensive – also under the influence of the growth of business production costs. The cost of the services of electricians and plumbers grew at a higher rate, which can be explained by the increase in demand for such services in conditions of electricity shortage. On the other hand, price increases for gyms, driving courses, car parking, taxis and rental housing have slowed due to weaker demand.
The growth of raw food prices slowed to 38.5% y/y
Borscht vegetables rose in price at a lower rate due to higher supply than demand, including due to warm weather, as well as greenhouse vegetables due to a sufficient supply of imported products. The growth of meat prices has slowed due to the decrease in the cost of feed and difficulties with product storage against the background of weak demand. Thanks to the increase in supply, the price of eggs also slowed down. In view of the better than expected harvests, the increase in the prices of flour, buckwheat and other cereals slowed down. The impact of the de-occupation of part of the Kherson region and the unblocking of the supply of goods to the region from other regions of Ukraine also restrained the increase in the cost of raw food products.
At the same time, due to the increase in world prices and high logistics costs, the prices of fruits, in particular bananas and citrus fruits, increased faster. The increase in sugar prices also accelerated under the influence of higher business costs, in particular due to the need to ensure the uninterrupted operation of factories in conditions of electricity shortages.
The rate of growth of administratively regulated prices decreased to 14.7% y/y
Under the influence of weaker consumer demand, the increase in the price of alcoholic beverages slowed down, and thanks to the stabilization of fuel prices, the price of transport services rose at a lower rate. Administrative inflation was also restrained by a moratorium on raising tariffs for housing and communal services for the population.
Instead, the growth of prices for tobacco products accelerated due to the planned increase in excise taxes.
The growth of fuel prices slowed to 61.8 y/y
This is primarily due to the slowdown in oil price increases on an annual basis, as well as to significant fuel reserves accumulated due to fears of increased demand for it amid power outages.
Greater food supply, weaker consumer demand, the impact of the de-occupation of Ukraine’s regions, a stable situation on the foreign exchange market, and improved inflationary expectations offset the effects of rising business costs, particularly those related to electricity shortages. As a result, inflation began to decline somewhat earlier than the National Bank predicted.
The NBU expects that inflation will continue to gradually decrease in 2023. However, in the conditions of a full-scale war, significant pro-inflationary risks remain. Evidence of this is, in particular, the further acceleration of core inflation due to the transfer of higher business production costs. In addition, the excess supply of food, which led to the deviation of actual inflation from the NBU forecast, was partly formed thanks to warm weather conditions for winter in January and may have a short-term impact.
The National Bank will continue to implement a tight monetary policy to preserve exchange rate stability, improve inflation expectations and ensure a sustainable decrease in inflation.
