Ukraine Headline Inflation Accelerates to 7.5% YoY in February

March 15, 2021

Rolling 12-month consumer price "headline" inflation in Ukraine accelerated to 7.5% in February after coming in at 6.1% YoY in January and 5.0% in December, according to State Statistics Committee data published on Mar 9. February’s CPI increase on a month-on-month basis was a notable 1.0%.

The inflation figure for February would have been even higher if the government of Prime Minister Dennis Shmygal had not made the populist move of lowering natural gas tariffs for households, thereby violating the market approach to pricing in the energy sphere; we suppose that the IMF will not fail to take note of this as it continues to evaluate Kyiv's commitment to the currently suspended standby loan program.

In other consumer basket categories, the bread price grew by 2.8% MoM, with the price moving up by 12% on a yearly basis as overall grain prices on the global market surged in the second half of 2020.
The National Bank raised its key refinancing rate from 6.0% to 6.5% earlier this month in a response to accelerating inflation in the country. The NBU says it is targeting headline inflation in a range of 4-6% for the medium-term horizon. Meanwhile, inflation expectations remain elevated. The central bank’s officials said that inflation will reach its peak in mid-2021 and will decelerate afterwards, returning to its target range in the first half of next year. However, this projection sounds overly optimistic to us, given the current enormous monetary stimulus programs in the world's biggest economies, which are likely to push global commodity prices higher. We assume that the National Bank will increase its key rate further by 50 bps to 7.0% at the scheduled monetary policy meeting on Apr 15.

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Dmitry Churin, Head of Research,