Why do raw products become more expensive - the NBU's answer

Raw food prices are already being pressured by a reduction in supply due to a lack of storage and high storage costs. Along with a worse-than-expected harvest forecast, food inflation is expected to be higher than in 2023. This was reported by the NBU as a result of the discussion of the members of the Monetary Policy Committee, UNN writes.

Details

According to the institution, in December, consumer inflation remained at 5.1% yoy, while core inflation continued to slow to 4.9% yoy. "The price dynamics at the end of the year turned out to be better than the NBU's previous forecast," the NBU said.

They explained that this was due to the effects of high harvests, which restrained the growth of food prices, as well as a moratorium on raising tariffs for certain housing and communal services. The NBU also pointed out that the rather stable situation in the foreign exchange market also had an impact.

"Despite this, the fundamental price pressure remains stable," the regulator said.

Among the factors are the significant negative impact of the war, the revival of demand amid economic recovery, and the impact of labor costs. "The shortage of skilled workers in the context of significant migration and mobilization processes encourages businesses to raise wages, which is ultimately passed on to consumer prices. This is evidenced by the rather high growth rates of prices for services," the NBU said. 

It is noted that the favorable effects of temporary factors reducing inflationary pressures, such as last year's high harvests, are gradually being exhausted.

"Raw food prices are already being affected by a reduced supply of quality products due to a shortage of storage facilities and high storage costs. In addition, the NBU expects a certain decline in harvest volumes this year after last year's record yields, which were largely due to extremely favorable weather conditions. Accordingly, food inflation, while remaining moderate, is expected to be higher than last year," the NBU said.

In addition, despite the moratorium on raising certain utility tariffs, "administrative inflation will remain significant, primarily due to the planned increase in excise taxes on alcohol and tobacco products.

Taking all these factors into account, the NBU forecasts a temporary acceleration of inflation in 2024 to 8.6%. "The risks to this forecast are quite significant, given the country's high needs to maintain its defense capabilities and the growing uncertainty around international financial assistance for this and subsequent years," the NBU said.

The NBU's forecast envisages a gradual reduction in external financing, but is based on the assumption that significant amounts of aid will continue to be available. In particular, the NBU expects to receive about USD 37 billion in 2023. In particular, the NBU expects to receive about USD 37 billion in concessional loans and grants in 2013.

"However, these amounts of funding have not yet been confirmed by international partners. These delays do not currently have any direct implications for Ukraine's macrofinancial stability, given the accumulated safety margin, but they may threaten economic stability in the medium term. In addition, delays in financing are already negatively affecting the expectations of economic agents, which was reflected, in particular, in the increased demand for foreign currency," the NBU said.

External financing will slowly decline - NBUFeb 2 2024, 11:19 AM • 56841 view