National Bank forecasts slow inflation decline by year-end

Inflation will noticeably decrease by the end of this year, and it is expected to reach the target of 5% in 2027. This is stated in the inflation report of the National Bank of Ukraine for July, reports UNN.

DetailsThe National Bank reports that inflation predictably peaked in May and returned to decline in June (14.3% y/y).

At the same time, it was higher than forecast, primarily due to the impact of unfavorable weather conditions on the supply of food products. However, the slowdown in core inflation (to 12.1%) was somewhat faster than forecast. The still significant fundamental price pressure reflected the effects of a sharp increase in food prices and significant business costs for raw materials and labor

It is noted that the situation on the foreign exchange market was stable, in particular due to previous measures taken by the NBU to strengthen interest rate policy. Fluctuations of the hryvnia against the US dollar were moderate, and the weakening against the euro still had a minor pro-inflationary effect. Inflationary expectations of economic agents showed multidirectional dynamics. Household expectations somewhat worsened.

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Statistics of internet search queries also indicated a moderate increase in public attention to the topic of inflation. In contrast, short-term expectations of financial analysts improved, and medium-term expectations remained stable, indicating their confidence in the temporary nature of the current inflationary surge. Overall, the expectations of all groups of respondents remained controlled and were lower than the inflation rate.

The dynamics of inflation in the coming months will largely depend on the actual impact of weather conditions on the supply and prices of agricultural products. According to preliminary estimates of the NBU, in July, overall inflation may slightly increase, while core inflation will continue to decline. In the following months, inflation is expected to enter a trajectory of sustained slowdown

It is reported that at the same time, taking into account more significant losses from the war and the further transfer of rising business costs to prices, the worsening forecast for harvests and the effects of the actual weakening of the hryvnia against the euro, the NBU revised the projected inflation trajectory towards a slower decline.

It is expected to slow down to 9.7% in 2025, 6.6% in 2026, and reach the target of 5% in 2027. The decline in inflation will be facilitated by monetary policy measures, a gradual increase in harvests, moderate external price pressure, and an improvement in the labor market situation against the backdrop of a stable foreign exchange market and sufficient international financing

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