The National Bank of Ukraine (NBU) estimates that inflation continued to decrease in May, following the current trend this year, Ukraine Business News reported on June 8.
Inflation dropped to 17.9% in April and the NBU’s June Macroeconomic and Monetary Survey states that it dropped to about 15.5% last month. The recent improvements are due to the sufficient supply of food and fuel, the hryvnia growing stronger on the cash foreign exchange market, the improvement of inflationary expectations and 2022’s base effects. (Chart)
Inflationary pressure experienced a decrease due to positive developments in inflation and exchange rate expectations, favourable conditions in the foreign exchange market, subdued consumer demand and reduced spending pressure. These combined factors effectively contributed to the ongoing moderation of inflation in May.
The NBU noted that economic activity continued to recover last month, as power supply remained uninterrupted and domestic demand supported industry and trade, although the blocking of the “grain corridor” and limitation on Ukraine’s food exports damaged the transport industry and several food processing sub-sectors. The indexation of pensions and budget payments helped support household income, whilst international aid and domestic borrowing helped cover the state budget deficit.
With inflation declining and the energy sector under control, Ukrainian businesses have expressed optimism that their production will grow. The index of expectations of business activity, which the NBU calculates every month, was 50.5 points in May, a decrease from 51.5 points in April, but still an improvement on March with 49.5 points.
The NBU believes inflation will drop to 14.6% this year, a revision of its previous prediction of 18.7% in December.
This is due to the NBU’s monetary policy, in addition to the rapid recovery of Ukraine’s energy sector, according to National Bank Governor Andriy Pyshnyy. In addition, energy prices have fallen and consumer demand has declined.
The NBU has been keeping its interest rates high in an effort to tackle inflation as well as maintain the stability of the currency.