Inflation will gradually decrease: National Bank explained what will contribute to this
Kyiv • UNN
The National Bank stated that inflation will begin to decline in the summer due to new harvests, a better situation in the energy sector, lower oil prices and monetary policy measures.
Inflation in April accelerated to 15.1% year-on-year. In summer, it will start to decline for a wide range of goods and services and will gradually move towards the target of 5%.
This is reported by UNN with a reference to the National Bank of Ukraine.
Details
Inflation in May probably reached its local maximum
In April, inflation accelerated to 15.1% year-on-year. NBU estimates indicate a further increase in annual inflation in May, which slightly exceeded the current forecast trajectory. Spring frosts additionally affected food prices, which affected the cost of the first batches of new crop vegetables and fruits
The National Bank notes that, however, after the slowdown in core inflation in April, according to the NBU's estimates, it continued to accelerate in May close to the forecast. As before, fundamental inflationary pressure was fueled by stable consumer demand and further growth in business production costs, including wages.
It is reported that the inflation expectations of economic agents, although somewhat deteriorated, remained quite stable and significantly lower than the current level of inflation. Search query statistics also indicated a further decrease in attention to the topic of inflation. These trends were also facilitated by the NBU's measures to protect hryvnia savings from inflationary depreciation and maintain the stability of the foreign exchange market.
Inflation will gradually slow down
In the summer, inflation will begin to decline for a wide range of goods and services and will gradually move towards the target of 5%. This will be facilitated by the arrival of new harvests, a better situation in the energy sector than last year, a decrease in world oil prices and a weakening of external price pressure, as well as the further impact of the NBU's monetary policy
The National Bank notes that a significant statistical effect will also be exerted by last year's high base of comparison of administratively regulated prices, in particular due to a one-time increase in electricity tariffs in June 2024.
NBU has left the discount rate unchanged at 15.5%05.06.25, 14:02 • 68124 views
At the same time, it is reported that the trajectory of inflation slowdown in the coming months will largely depend on the impact of spring frosts and weather conditions in the summer on the supply and prices of agricultural products.
The key risk for inflationary dynamics and economic development remains the course of the full-scale war
The war continues. Russian aggression continues to threaten the country's long-term economic potential, in particular through the loss of people, territories and industries. The speed of the economy's return to normal functioning will depend on the nature and duration of hostilities
The main risks caused by Russian aggression remain unchanged:
⦁ the emergence of additional budgetary needs, primarily to maintain defense capabilities;
⦁ further damage to infrastructure, primarily energy;
⦁ deepening of negative migration trends and expansion of labor shortages in the domestic labor market.
The National Bank adds that a separate significant risk for inflation and economic development is a greater negative impact of weather conditions on this year's harvest than is currently estimated.
Risks related to potentially less favorable external conditions against the background of increased geopolitical uncertainty and deglobalization are also relevant.
So far, trade and political confrontations have not had a significant impact on the Ukrainian economy and have even partially supported it through lower oil prices. However, further aggravation of trade disputes between countries could significantly weaken the global economy, which would lead to a decrease in external demand and create threats to the rhythm of international financing.
At the same time, the National Bank notes that the probability of realization of a number of positive scenarios remains. They are primarily related to the strengthening of financial support from partners (in particular, through the use of the main amount of immobilized Russian assets) and the efforts of the international community to ensure a just and lasting peace for Ukraine. Further acceleration of European integration processes and reconstruction of infrastructure, including energy infrastructure, is also possible.