The NBU explains why prices are rising and when they will start falling
25 April 12:35
In the first quarter of 2025, inflation was expected to rise, reaching 14.6% yoy in March. This dynamics was driven not only by the residual effects of last year’s poor harvests and further increases in prices for excisable goods, but also by higher energy and labor costs and fairly stable consumer demand. This is stated in the April inflation report of the NBU, reports
The NBU’s forecasts are more optimistic and suggest that inflation will fall to single digits by the end of 2025, which will be achieved through monetary policy measures, new higher harvests, and an improvement in the energy sector. In the summer, year-on-year price growth will begin to slow for a wide range of goods and services.
This will help to reduce food inflation
The NBU reminded that the effects of last year’s poor harvests led to higher prices for fruits, livestock products, flour, and cereals. At the same time, the rise in price of certain vegetables was restrained by increasing imports, selling off stocks after the onset of warm weather in Ukraine, and the arrival of a new greenhouse harvest. Livestock prices continued to rise, driven by the secondary effects of higher feed prices and higher energy prices.
With the arrival of a larger supply of new crops in the summer, the annual growth rate of raw food prices will begin to decelerate rapidly and will fall to single digits by the end of the year.
The potential for restraining food inflation through imports is also greater this year, as domestic prices are already much closer to global prices. In the future, provided that there are no significant supply shocks, food inflation will return to relatively low levels (around 3%) as food production gradually increases and logistics are streamlined.
What’s happening to prices for services and non-food products
The NBU reports an increase in prices for services: to 14.6% yoy in March from 12.5% yoy in December 2024.
Compared to December, services grew more rapidly:
– healthcare – due to the updated list of paid medical services in state and municipal institutions,
– transportation – due to an increase in fuel prices at the beginning of the year and changes in approaches to calculating the cost of a motor vehicle insurance policy
– communications – due to tariff increases by mobile operators and Internet providers,
– restaurants, hotels and financial institutions.
The growth in nonfood prices accelerated (to 4.7% yoy from 4.1% yoy in December 2024), but remained moderate amid improved exchange rate expectations.
At the same time, the growth rate of prices for imported services (transportation, medical, veterinary, dental, etc.) remained high.
At the same time, prices for clothing and footwear remained lower than last year, likely due to intense competition in this segment.
“Underlying inflationary pressures will remain high, but from the middle of this year, core inflation will begin to decline under the influence of monetary policy measures, improved electricity supply, and moderate pressure from the labor market,” the NBU said.
What is happening with wages
According to the NBU, real wages have recently been growing faster than productivity in the economy, given the persistence of imbalances in the labor market.
However, in the coming years, the impact of this factor will soften, and the pace of wage growth will slow, putting less pressure on prices.
As a result, by the end of 2026, core inflation will decline to around 3%, which will help the NBU achieve its inflation target even in the face of higher growth in administratively regulated prices.
What will happen to the Ukrainian economy
The NBU predicts that economic growth will continue in 2025, given the expected increase in harvests, a reduction in the electricity deficit, and significant defense orders.
On the demand side, it will be supported by recovery investments and sustainable consumption. However, growth will remain limited (3.1% this year after 2.9% last year) due to the effects of the war, including labor shortages and damage to gas infrastructure, and the effects of global trade confrontations.
In 2026-2027, real GDP growth will accelerate to 3.7-3.9% due to increased investment in reconstruction, restoration of production and infrastructure, and resilient consumer demand.
What are the World Bank and IMF’s forecasts for Ukraine?
In its updated macroeconomic forecast for Europe and Central Asia, the World Bank confirmed its January forecast of a slowdown in Ukraine’s GDP growth this year to 2% from 2.9% last year. The forecast also downgraded the estimate of GDP growth next year to 5.2% from 7%.
In its April World Economic Outlook, the International Monetary Fund left unchanged its forecast for Ukraine’s economic growth in 2025 at 2%.
In 2026, the IMF expects GDP growth of 4.5%. For Ukraine, inflation is projected at 12.6% in 2025, and 7.7% in the following year.
