Industrial inflation in Ukraine has reached a record level in 30 years

The increase in the cost of electricity in June 2024 had a significant impact on inflation in both the consumer and industrial sectors. According to the data of the State Statistics Service, the producer price index (PII) of industrial products increased by 14% in June compared to May of the same year.

According to Forbes, such industrial inflation has not been observed in Ukraine in the last 30 years. The last time similar growth rates took place during the hyperinflation of 1992-1995. At the same time, as early as March 2024, annual inflation in industry was almost zero. A sharp rise in industrial inflation is often a harbinger of an acceleration in the consumer price index.

The main reason for the sharp increase in the producer price index is the significant increase in the price of electricity for businesses in June. On an annual basis (June 2024 to June 2023), the growth of the ICV accelerated to 26.7%.

In particular, the annual index of industrial inflation reached 48.1% in the energy sector, 10.8% in the extractive industry, and 7.2% in the processing industry. These data indicate that the sharp increase in the cost of energy carriers has a significant impact on all industries.

In early 2022, when annual CPI growth exceeded 62%, the National Bank of Ukraine stated that the impact of industrial inflation on consumer inflation is relatively weak. According to the NBU's estimates, a 10% increase in the CPI results in an approximately 1% increase in the consumer price index. However, current conditions suggest that the situation may change, given the rapid rise in industrial inflation.

Economic experts note that the increase in prices for electricity and other energy sources may have long-term consequences for the economy of Ukraine. High production costs can force businesses to raise the prices of their products, which will ultimately affect consumer prices.

Given the situation, the government and the National Bank need to take measures to control inflation and maintain the stability of the economy. This may include both monetary instruments and regulatory measures to ensure the stability of the energy market and prevent further price increases.