National Bank of Ukraine explains rapid slowdown in inflation with "unpredictable" factors

The actual price growth rate in March was lower than forecasted by the National Bank of Ukraine due to the dynamics of components that are "hard to predict".

Source: National Bank of Ukraine (NBU)

"The deviation from the forecast was caused by the dynamics of components that are hard to predict, primarily prices for raw products. The rapid reduction in the cost of such products is primarily due to temporary factors, the impact of which is likely to dry up in the second half of 2024.

These factors include the effects of last year's significant harvests, this year's mild winter, and the effects of the transport blockade of the western borders. In particular, the export restriction affected an increase in the supply of certain food products on the domestic market, which caused a decrease in their cost," the report says.

In addition, fuel prices rose more slowly than expected due to a more restrained increase in world oil prices and the warm winter.

"But the fundamental inflationary pressure, which is most affected by the monetary policy of the National Bank of Ukraine, weakened moderately and was close to the forecast. Thus, core inflation in March decreased to 4.2% YOY," the NBU added.

The slowdown in core inflation was influenced by the following:

• Transfer effects from cheaper raw food products;
• Improvement of inflation expectations against the background of relative stability of the foreign exchange market and maintaining the attractiveness of Hryvnia instruments.

However, the National Bank noted that the rapid decline in core inflation was limited by the blockade of western borders, primarily due to rising import prices and a further increase in business spending on labour.

Background: In March, consumer price growth in Ukraine accelerated from 0.3% in February to 0.5%. At the same time, annual inflation slowed down to 3.2%.

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