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Ukraine Watch: Inflation accelerated in March presumably on seasonality
Inflation accelerated to 1.5% in March, driven by seasonal changes in methodology, and rising egg prices. Annual inflation reached 14.6%, surpassing NBU's forecast. Hryvnia strengthening and oil price drops could help stabilize inflation this month.
Inflation accelerated in March presumably on seasonal factors
Higher monthly inflation rates in March in mom terms are usually backed by two main factors. The first one is the seasonality of prices for fruits and vegetables. The second one is the technical transition in the method of calculation in prices for clothing and footwear from the winter to summer, which usually represents a cumulative effect of price changes in this category over the last six months. However, the first factor has been influencing inflation already for a few months in a row, while the second one has its impact just twice per year. If considering the weight of this category in the CPI calculation, it usually adds 0.6-0.7pp to the monthly inflation rate in March, thus almost entirely explaining the acceleration of monthly inflation from 0.8% to 1.5% in March 2025.
Besides just seasonal patterns, we notice a contribution of a fairly strong 18.8% mom rise in egg prices, which added 0.2pp to the monthly inflation. We understand this was not a local trend if we look for a global deficit of eggs (which caused a price hike) after a shortage in their supply in the US. Hence, external trade statistics from the Customs office showed a solid hike in egg exports from Ukraine, which limited domestic supply and contributed correspondingly to the price increase locally. Even though similar trends were observed in the first week of April, we are not sure about the sustainability of a hike in egg prices after the Easter holidays.
A certain surprise in price dynamics came from pharmaceutical products, which grew by 1.9% over the month in March. This strictly contradicts to the fact of reduction in prices for some pharmaceutical products by domestic producers since 1 March due to respective initiative from the government. Instead, we notice even an acceleration in positive mom price dynamics to 1.9% in March from 1.1% a month before. We recognize that not all product prices were reduced, and foreign producers were not required to adopt the same pricing strategy, which may have impacted last month's growth pattern
The annual inflation accelerated to 14.6% in March, which is close to our expectations, while exceeding the NBU forecast of 14.3% slightly. Even though we are not sure that this would be a valuable argument for another rate hike by the NBU next week, we see growing chances of a preservation of the rate at its current level of 15.5%. Indeed, the low comparison base of last year and rather cold weather in early April may become additional pro-inflationary factors, thus possibly accelerating annual inflation slightly again, albeit in line with estimates.
On the other hand, we believe that a slight hryvnia strengthening in recent weeks and a visible drop in oil prices could be mitigating factors for inflation this month. Moreover, the heightened risks of a global recession due to the intensification of tariff wars can negatively impact resources’ prices (in the manner it did in 2020). Consequently, we maintain our year-end inflation forecast in 2025 at 8.0%.
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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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