Inflation accelerates, incomes of Ukrainians decrease, hryvnia value fluctuating

7 October 2022, 03:23 PM
Inflation is accelerating, and the hryvnia exchange rate is prone to fluctuations - the September review of the NBU (Photo:NBU / Flickr)

Inflation is accelerating, and the hryvnia exchange rate is prone to fluctuations - the September review of the NBU (Photo:NBU / Flickr)

Consumer inflation in Ukraine accelerated from 23.8% in August to 24.4% in September in annual terms, according to the National Bank of Ukraine’s Macroeconomic and Monetary Review, which was released on Oct. 5.

“The main reasons for the increase in inflationary pressure are the consequences of the war and the Russian invasion, the occupation of certain territories, and the pass-through effects of the hryvnia exchange rate correction,” the NBU said in the report.

Additionally, the regulator noted, inflationary expectations continue to deteriorate. In particular, the business community expects inflation to reach 25% over the next 12 months.

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Labor market

The seasonal increase in economic activity supports further growth of demand for labor, resulting in a slight decrease in the number of job applicants per vacancy, the NBU noted. However, about 75% of Ukrainians surveyed still declare their income has decreased compared to pre-war levels. Migration remains stable both abroad and within Ukraine.

State finances and external operations

In September, the state budget deficit increased significantly, in particular, due to sizable expenditures. The deficit was primarily covered by government funds accumulated in the previous month sourced from international aid, and monetary financing. Demand for government domestic securities remained weak.

The launch of the grain corridor contributed to the narrowing of the goods trade deficit, although the latter remained wider than the pre-war level. Higher amounts of international financial aid ensured there was an increase of the current account surplus and capital inflows under the financial account. As a result, gross international reserves grew for the first time since March and reached $25.4 billion as of the end of August.

Currency market

The cost of borrowing continues to grow in response to the key policy rate hike in June and expectations for it to remain at its current level for a long period.

Meanwhile, exchange rate fluctuations on the FX cash market intensified in September. This was mainly caused by a deterioration in the information environment on the background of aggressive statements and terrorist actions by Russian on the background of a deficit of foreign currency on the market.

As reported earlier, the NBU proposed a revision of the inflation forecast based on the results of 2022.

According to current NBU forecasts, inflation will reach 31% by the end of 2022. According to the draft state budget draft for next year, annual inflation for 2023 will be 30%.

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