The National Bank of Ukraine (NBU) expects inflation to remain within the range of 10–11% in September-October and decline below 10% in the last months of the year, the central bank said on its website on Thursday.
At the same time, the central bank said that Inflation will continue to slow next year: it will gradually return to the target of 5%.
"Despite a correction of prices for some foods and a gradual weakening of the low comparison base effect, sustained high global prices for energy and food made a large contribution to headline inflation. Unfavorable weather in July-August also impacted domestic prices of some food products," the NBU said.
As before, the primary assumption of the NBU Board is that Ukraine will continue to cooperate with the International Monetary Fund (IMF).
"The disbursement of $2.7 billion to Ukraine as part of an SDR allocation by the IMF helped finance Ukraine's short-term budget needs, including external debt repayments. At the same time, to maintain its macrofinancial stability in the coming years, Ukraine must continue to cooperate with the IMF under the stand-by program," the NBU said in the release.
At the same time, the NBU said that major risks to the economy are the potential imposition of much tighter quarantine measures in Ukraine and globally, and a longer and stronger-than-expected surge in global inflation.
"The spread of new variants of COVID-19 may lead to another tightening of quarantine restrictions and a weakening of economic activity. The direction of the impact on inflation will be determined by the ratio between proinflationary factors (due to production chain disruptions) and disinflationary factors (driven by a weaker aggregate demand). A longer-than-expected price surge in commodity markets and Ukraine’s MTPs will put pressure on domestic prices and pose the risk of a longer-term deviation of inflation from its 5% target," the NBU said in the release.
If underlying inflationary pressures increase significantly and inflation expectations continue to worsen, the NBU stands ready to take additional measures to return inflation to its 5% target, the NBU added.