NBU worsens inflation forecast in Ukraine to 9.7% in 2025, 6.6% in 2026
The National Bank of Ukraine (NBU) has worsened the inflation forecast to 9.7% in 2025 and 6.6% in 2026, expecting a return to the 5% target only in 2027 due to higher price pressure, the consequences of the war, worse harvests and the weakening of the hryvnia against the euro.
"Taking into account more significant losses from the war and businesses’ expenses continuing to pass through to prices, a worsened harvest forecast, and the effects from the actual easing of the hryvnia against the euro, the NBU has revised the forecast trajectory of inflation, projecting that inflation will decline more slowly," the regulator reported on Thursday.
The NBU notes that in the coming months, inflation dynamics will largely depend on the real impact of weather conditions on the volumes and prices of agricultural products.
According to preliminary estimates, in July, overall inflation may increase slightly, but core inflation will continue to decline. In the future, inflation is expected to enter a trajectory of stable deceleration.
The National Bank explained that inflation will decrease due to the regulator's actions in the field of monetary policy, a gradual increase in harvests, moderate pressure from world prices, an improvement in the labor market, stability in the foreign exchange market, and an appropriate level of external financial support.
"Inflation peaked in May, as expected, and went back to declining in June (14.3% yoy). At the same time, it was higher than forecast – primarily due to the impact of unfavorable weather conditions on supply of food products," the regulator comments.
At the same time, core inflation slowed faster than expected, falling to 12.1%. However, fundamental price pressures remained noticeable due to sharp increases in food prices and high business costs for raw materials and wages.
"The situation on the FX market was sustainable, in particular thanks to the NBU’s previous measures to tighten the interest rate policy. Fluctuations in the UAH/USD exchange rate were moderate, and the weakening of the hryvnia against the euro has had an insignificant inflationary effect so far," the NBU believes.
The regulator also noted that the inflation expectations of different groups of economic agents were heterogeneous: households somewhat worsened their forecasts, which was also confirmed by the growth of interest in the topic of inflation in online queries.
At the same time, the short-term expectations of financial analysts improved, and the medium-term ones remained stable, which indicates their confidence in the temporary nature of the current inflationary surge.
In general, the expectations of all respondents were controlled and lower than the actual inflation rate.
As reported, in April the NBU for the second time this year worsened the inflation forecast for 2025 - now from 8.4% to 8.7% and maintained the expectation of its return to the target level of 5% in 2026.