Saturday08 February 2025
smiua.net

Inflation is expected to decrease by mid-year, while GDP will grow, according to the NBU's inflation report.

It is projected that by the end of 2025, inflation will reach 8.4%.
Инфляция начнет снижаться с середины года, а ВВП будет расти, согласно инфляционному отчету НБУ.

According to the updated forecast from the NBU, inflation will rise in the coming months, but it is expected to start decreasing by mid-year. By the end of 2025, it will reach 8.4%, and by the end of 2026, it will return to the NBU's target of 5%. This year, real GDP is projected to grow by 3.6%, with economic growth accelerating to approximately 4% per year over the next two years.

This is supported by the data from the NBU's inflation report for January 2025.

The NBU's monetary policy aims to reduce inflation this year and bring it down to the 5% target in the future.

The NBU raised the discount rate by 0.5 percentage points in December and by 1 percentage point in January to support the stability of the currency market, control expectations, and gradually lower inflation to 5%. Further tightening of policy is anticipated in the first half of 2025 to curb price pressures.

It is noted that the increase in rates will encourage banks to raise interest rates on hryvnia deposits, which will protect savings from inflation, improve inflation expectations, and encourage a shift in consumer spending towards savings in hryvnia, thereby reducing pressure on the currency market and prices.

Inflation will peak in the second quarter and then begin to decline

Inflation is expected to rise in the coming months due to limited food supply following poor harvests and rising production costs. However, this trend is expected to be short-lived: the peak is anticipated in the second quarter, after which inflation will start to decrease, reaching 8.4% by the end of 2025.

According to the report, the NBU's measures, currency market stability, a new harvest, reduced fiscal deficit, and weaker external price pressures will contribute to the slowdown in inflation. The impact of the labor market on prices will gradually diminish, and the effects of investments in energy independence are already largely factored into prices.

Economic growth will accelerate to 3.6% in 2025 and approximately 4% in the following years

"The economy will grow due to investments in the reconstruction of energy and production capacities, a soft fiscal policy, a revival of domestic demand, and increased production from higher harvests. With the economy returning to normal operating conditions, there will also be a gradual return of migrants, which will further support GDP growth," the report states.

Background. Previously, Mind reported that the NBU released its macro-financial forecast for 2025-2027. Among other things, it is expected that inflation will slow down to 5% in 2026.