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Ukraine Watch: Inflation acceleration returned to forecasted path
Inflation in January aligned with forecasts at 1.2% monthly. Annual inflation rose from 12.0% to 12.9% due to a low comparison base. We expect annual CPI to peak at around 15% in April before declining to 8.0% by year-end. This suggests further monetary tightening by the NBU.
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Inflation acceleration returned to forecasted path in January
Monthly inflation at 1.2% is exactly the same as our and consensus forecasts. Moreover, this figure doesn't appear quite high for January. Indeed, it aligns with the average indicator for this month, where seasonal factors usually matter mostly. We also believe this rate is quite close with NBU inflation forecast, with an expected quarterly indicator of 14.3% by the end of the first quarter.
Disregarding relatively ordinary monthly inflation, its annual reading in January recorded continuing growth (to 12.9% from 12.0% a month ago). We think the effect of a low comparison base has the most influential impact here, as monthly inflation was just 0.4% a year ago. We think a similar factor would influence further acceleration in annual inflation over February-April while not influencing our year-end projections. It is also worth mentioning that the rate of acceleration in annual inflation (by 0.9 p.p.) stays below 1 p.p. for the second month running, which may hint at the absence of serious concerns to see the inflation path worse than the projected trajectory in the medium-term.
Food prices grew even slightly milder in January than overall inflation (by 1.1% mom). We should definitely mention the substantially weaker influence of inflationary drivers there if comparing them to the patterns noticed in previous months. For example, even though the hike in vegetable prices in January was still quite noticeable (5.5% mom), it still lags behind the corresponding figures in October-November (13-18%), thus reflecting our estimates on the relatively short-lived impact of this factor on consumer prices.
Disregarding the milder growing dynamic of food prices, a hike in inflation in January was supported by several new factors. Communication tariffs (for both fixed line and mobile services) increased by 9.1% mom in January, which added 0.3 percentage points to monthly inflation. We also noticed a hike in the cost of healthcare goods and services (by 1.7% mom).
Because inflationary developments at the beginning of this year were in line with our forecasts, we can see a further acceleration in annual CPI in the coming months, approaching 15% in April. But full exhaustion of the low base effect and the limited impact of other pro-inflationary factors, together with tight NBU monetary policy, would cause a gradual slowdown in annual inflation from the middle of the year to 8.0% by the end of 2025. However, the fact that core inflation (1.3% mom) slightly exceeded the headline figure for the first time over the last four months, thus also staying at a growing path in annual terms (to 11.7% from 10.7%), we think this could be a core argument for NBU officials to keep further monetary tightening in the coming few months. We believe this can be reflected by another 100 bp hike in the policy rate to 15.5% in March.
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Oleksandr PECHERYTSYN
Ukraine Oleksandr Pecherytsyn is the Head of Research in Raiffeisen Bank Ukraine. He joined the team in February 2022. He has more than 20 years of experience in the banking sector and macroeconomic research. Before taking on the current position, he worked as Chief Economist in Credit Agricole Ukraine for 9 years. Previously, he worked for ING Bank and Alfa Bank. He is MA in Economic Theory obtained in National University Kyiv-Mohyla Academy.
Serhii KOLODII
Ukraine Kolodii Serhii is a macroeconomic analyst at Raiffeisen Bank Ukraine focusing on analysis and research of Ukraine economy. He joined research team in May of 2020. Prior to joining Raiffeisen Bank, Serhii worked as a professor in Banking University (Kyiv) and has been having a long experience in economic education. He holds a PhD from the Ukrainian Banking Academy of National Bank of Ukraine and is an author of more than 120 scientific publications, especially focusing on fiscal policy and local budget topics and has a passion for public choice theory and economic history. Outside the office, Serhii prefers playing Ping-Pong and football, enjoying hiking and travelling with family.
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