Main contribution to inflation in Ukraine will come from utility tariffs – National Bank
The disinflationary tendency will continue in Ukraine and the economy will revive, driven by both internal and external factors, but utility tariffs will become the main inflationary factor in the country.
Source: National Bank of Ukraine (NBU)
Details: Overall, the Ukrainian economy is recovering faster than the National Bank expected.
Thus, the inflation rate in Ukraine has rapidly slowed from 26% in January to almost 11% in July.
"The disinflationary tendency will continue. In particular, inflation is predicted to decline to 10.6% in 2023, 8.5% in 2024, and 6.0% in 2025."
A number of factors will contribute to this:
- a gradual drop in global prices, particularly for energy;
- the end of the war will stimulate production growth, and a larger supply of goods will hold back inflation;
- the National Bank will continue to balance the foreign exchange market and protect the hryvnia's attractiveness (hryvnia is Ukraine's national currency). This will limit the growth of prices for imported goods.
This, in turn, will limit the growth of prices for imported goods in Ukraine.
As the country recovers, the hryvnia will be further supported by investments and international financial assistance.
Given the better-than-expected situation in the first half of the year, the NBU revised its forecast for real GDP growth in 2023 from 2.0% to 2.9%. In the following years, tht economic growth will accelerate to 3.5-6.8%.
The National Bank stated that the two negative factors that will affect the economy are the active phase of the war, and, after it ends, housing and utility tariffs will have left.
"If the active phase of the war lasts longer than the most popular assumption (mid-2024), the economy is likely to grow more slowly. Russia does not stop trying to destroy the country's economic potential," the National Bank said.
"The main contribution to inflation in the post-war years is likely to be a gradual adjustment of utility tariffs," the NBU also said.
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