NBU worsens inflation forecast in 2024 to 8.5%, to 6.6% in 2025

 The National Bank of Ukraine (NBU) has worsened the price growth forecast for 2024 and 2025 by 0.3 and 0.6 percentage points (p.p.), respectively – to 8.5% and 6.6% primarily due to increased business costs for labor and electricity.

“Price pressure will continue in the coming months due to further increases in business costs, higher excise taxes, as well as the exhaustion of the effects of last year’s significant harvests and the negative impact of summer drought on current yields,” the regulator said in a press release on Thursday.

It is noted that preliminary estimates of inflation in July confirm its further acceleration.

According to data on the website, the National Bank expects inflation to accelerate in the third quarter of this year to 7.9%. According to NBU forecasts, its growth will continue in the first quarter of 2025, when inflation will reach a peak of 9.7%, after which it will begin to decline.

According to the State Statistics Service, the growth of consumer prices in Ukraine in June 2024 accelerated to 2.2% from 0.6% in May, and in annual terms, inflation in June increased to 4.8% from 3.3% in May.

“At the same time, inflation will remain moderate – 8.5% at the end of the year according to the updated forecast of the NBU. This, in particular, will be facilitated by the NBU’s measures to protect hryvnia income and household savings from inflation and ensure the stability of the foreign exchange market,” the regulator explains.

The National Bank indicates that the continued effect of the moratorium on increasing housing and utility tariffs for gas, heating and hot water will also be a restraining factor for price growth.

"The NBU's balanced interest rate and exchange rate policy, as well as the weakening of external inflationary pressure will allow inflation to slow down as early as 2025 – to 6.6%. In 2026, inflation will return to the NBU target of 5% against the backdrop of a gradual normalization of the functioning of the economy and further improvement the situation in the energy sector," the central bank emphasizes.

The National Bank reported that underlying inflation of 5% year-on-year in June was in line with its forecast, and cited increased business costs for labor and electricity as the reasons for strengthening fundamental price pressure.

“In addition, the dynamics of individual components of the basic consumer price index was affected by the weakening of the hryvnia exchange rate,” the NBU added.