Inflation Peaks, But Weather Risks Remain – Ukraine’s Central Bank

Ukraine’s central bank, the National Bank of Ukraine (NBU), is keeping the key policy rate unchanged while warning that risks for inflation might reverse. 

The central bank decided to keep the key rate at 15.5%, NBU governor Andriy Pyshny announced during an online briefing with journalists on Thursday. 

Ukraine’s central bank governor said the inflation rate appears to have peaked, after accelerating in April and May this year. Keeping the key rate should help it decelerate toward the 5% target. 

“The NBU’s estimates show that inflation continued to rise in annual terms in May and was somewhat above the current forecast trajectory,” Pyshny said during the briefing. 

But the NBU remains cautious because spring frosts in Ukraine – when the temperature suddenly dropped to below freezing in April – could jeopardize the hopes for a decline in inflation. 

The frosts have already impacted the prices of the first batches of fruits and vegetables of the new harvest, the NBU wrote in its press release. 

This adds to the factors that held inflation growth sustainable during the last six months: rising labor and production costs for businesses, which were consequences of Russia’s full-scale invasion of Ukraine, as well as robust consumer demand. 

The NBU will decrease the key rate only after the central bank observes that Ukraine has passed the peak price surge and the risk of further inflation has been attenuated, according to the NBU’s statement. 

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Ukraine Inflation Forecast 2025

The NBU forecasts that inflation will decrease to 8.8% by the end of 2025, thanks to new harvests, stable access to electricity, lower global crude oil prices, and global prices weighing less on prices in Ukraine. 

The decrease will also be partly based on statistics. Electricity tariffs in Ukraine rapidly increased in June 2024 and will not seem so high this year because of the comparison effect. 

The next few months of 2025 are key for the central bank to see whether inflation decelerates. Spring frosts and weather conditions in the summer loom over the forecast. If harsh, the weather will have an inflationary impact on prices of agricultural products. 

The concern is based on lessons learned from last year. Ukraine experienced a severe drought in summer 2024 which resulted in poor harvests. They became the first trigger of inflation back then – and the central bank is concerned the situation might repeat if summer brings Ukraine another dry spell. 

In 2024, Grain harvests dropped by 4.6 million tons, and vegetable harvest volumes decreased by 0.7 million tons compared to 2023, according to NBU estimates. 

It caused a chain reaction of price increases in raw food products, processed food products, and the cost of meals Ukrainians eat outside their homes. Prices of raw food products also impacted the rising costs of livestock feed, fueling prices of livestock products.

Inflation spiked from 3.2% in March-April 2024 to 15.1% in April 2025. The NBU forecasted the increase, but wasn’t ready for its scale. “These factors turned out to be stronger than we had expected,” Deputy Governor Sergiy Nikolaychuk previously told Kyiv Post in an interview.