The NBU has revised upwards its forecast for inflation in 2021 / Photo from UNIAN, by Volodymyr Hontar

The National Bank of Ukraine (NBU) expects inflation to accelerate in the first half of 2021 with a return to a target range of 5% ± 1 pp in the first half of 2022.

The regulator reported the figures in materials.

Read alsoStatistics service reports on food price hikes in Ukraine in 2020

"The NBU has revised upwards its forecast for inflation in 2021 from 6.5% to 7%. Inflation will accelerate in H1 on the back of strong consumer demand, higher energy prices, and last year’s lower harvests of agricultural crops. In addition, businesses will face higher production costs, in particular labor costs. Administered prices will continue to grow rapidly due to increases in electricity rates and excise taxes on tobacco products," it said.

The NBU noted that in 2020 inflation accelerated to 5% and reached the center point of the target range, while during the last year inflation was mainly below a target range of 5% ± 1 pp.

"Falling global energy prices, as well as declining demand for non-staple goods and services, restrained price growth during the pandemic. At the same time, inflation increased expectedly at the end of the year. This was due to the rapid global economy recovery, the further strengthening of domestic consumer demand, and increases in prices for energy and certain foods. As a result, inflation in December returned to the target range," the materials say.

The NBU expects that in the future, the influence of pro-inflationary factors will weaken, which will turn the inflationary dynamics. The increase in the supply of farm produce from the new harvest will slow down food inflation, and at the end of the year, the effect of a low comparison base for individual products will be reduced.

The National Bank's monetary policy will also be aimed at easing fundamental pressure on prices from stable consumer demand and at improving inflationary expectations. As a consequence, core inflation is expected to be 5.9% at the end of 2021, and headline inflation is expected to return to the target range again in the first half of next year. In 2022-2023, inflation will be around a medium-term target of 5%.

Previous developments

  • Consumer inflation in Ukraine in December 2020 in annual terms – compared to December 2019 – grew to 5% from 4.1% a year earlier.
  • On December 16, 2020, Prime Minister Denys Shmyhal spoke about what would happen to the revenues of the national budget for 2021.
  • On December 18, 2020, PM Shmyhal said that in 2021 the economy was expected to grow by 4.6%, as well as moderate inflation.