NBU improves Ukraine's 2023 inflation outlook to 10.6% from 14.8%

MOSCOW. July 27 (Interfax) - The National Bank of Ukraine has improved its forecast for the country's inflation in 2023 to 10.6% from 14.8%, Ukrainian media quoted the NBU as saying in a press release.

"Having considered the favorable dynamics of H1, the NBU revised its 2023 inflation forecast significantly upward, from 14.8% to 10.6%. The growth in prices will slow due to a gradual decline in global inflation and monetary conditions remaining tight in Ukraine. The NBU will safeguard sustainability of the FX market and keep hryvnia assets attractive enough, which will restrain price pressures," the NBU said.

It said consumer inflation decelerated to 12.8% year-on-year in June, from more than 26% at the start of the year, which exceeded the NBU's expectations. In addition to the base effect, supply factors played an important role - in particular, the saturation of food and fuel markets and a decrease in global energy prices.

At the same time, further disinflation will be slower than in the previous months, the NBU expects. This is driven by the waning of the base effect, returning to the previous level of the fuel tax, and the increase in electricity prices for household consumers in June.

"The disinflation trend will continue in the coming years. Lower security risks will allow restoring optimal logistical routes and increasing industrial production and crop harvests. Furthermore, this will enable a resumption of investment inflows to Ukraine. A further decline in global prices, in particular energy prices, will also contribute to the slowdown in inflation," the NBU said.

These factors outweigh the pro-inflationary impact of an increase in domestic demand, a rise in wages, and adjustment of some utility tariffs. Therefore, the NBU expects inflation to decline to 8.5% in 2024 and to 6% in 2025.