Inflation in Ukraine has sharply declined

Inflation in Ukraine has declined due to fixed tariffs for certain utility services, good harvests, and a significant slowdown in the growth of food prices

The National Bank of Ukraine reports that inflation in 2023 has sharply declined sharply compared to the end of 2022. Whereas consumer prices rose by 26.6% in the first year of the full-scale war, they rose by only 5.1% last year. 

Fixing tariffs for certain utility services (supplies of natural gas, heating, and hot water) remained an important factor in restraining inflation. In addition, thanks to good harvests, the growth in food prices slowed markedly.

A decline in certain production costs for raw materials and logistics also played an important role. For example, in 2023, crude oil prices fell globally, and food prices decreased in the domestic market, in particular due to strong harvests. Also, the establishment of alternative supply routes made the delivery of goods less expensive.

The NBU’s measures to maintain the sustainability of the foreign exchange market also contributed significantly to the slowdown in inflation. First, the NBU actively supported the hryvnia exchange rate by selling foreign currency from reserves. Second, it ensured the attractiveness of hryvnia savings instruments (deposits and domestic government debt securities), which restrained the demand for foreign currency. As a result, the situation on the foreign exchange market remained under control, and exchange rate fluctuations were moderate and not threatening.

The NBU forecasts inflation to accelerate only moderately this year, to 8.6%. The main reason for this will be slightly lower harvests, as last year’s high crop yields were due to extremely favorable weather conditions, and this year’s yields are likely to be close to average climatic norms. In addition, the adverse effect of the war on business costs will persist. At the same time, the NBU expects that in the coming years, as the security situation improves, inflation will return to the target range of 4%–6%.