Ukraine’s Central Bank Reports Inflation 13.4%, But Positive Business Sentiment

Positive business sentiment in Ukraine outweighed negative for the first time in 11 months, despite a sustainable increase in inflation to 13.4% in February 2025.

Preparations for the spring sowing campaign and defense needs in March contributed to a revival of industrial activity, according to Ukraine’s central bank, the National Bank of Ukraine’s (NBU) macroeconomic and monetary review for March 2025. 

Warmer weather and improved consumer sentiment supported increased activity in construction and trade. At the same time, businesses prepare to serve the agricultural sector ahead of the sowing campaign in spring. The defense industry pushed a revival of industrial activity, the NBU wrote. 

The positive trend in Ukraine’s economy remains fragile, as inflation continues to rise. 

In February 2025, headline inflation increased up to 13.4% year-over-year, while core inflation hit 12.0% y/y. The increase is caused by both temporary factors – such as limited food supply due to poor harvests last year – and fundamental ones, including rising business costs, particularly for labor and energy, persistently robust consumer demand.

According to the NBU’s estimates, inflation continued to rise in March.

The effect of the poor harvests in the last year, which started to cause inflation in the second half of 2024, still impacts the price pressure. 

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“Processed food prices also continued to rise, driven by further increases in the costs of raw materials, electricity, labor, and logistics,” the NBU wrote. 

But price pressure in the second half of 2024 also became more persistent due to the faster price growth for non-food goods and services, especially prices for healthcare, transportation, communications, and entertainment. 

Other key inflation insights from the NBU’s report

• Rapid increase of gas prices for vehicles in February 
• Gas price growth is restrained by a surplus in gasoline supply, competition among gas station chains, and the optimization of import logistics
• Goods under excise (tobacco and alcohol) increased in prices due to higher production costs and price adjustments in response to policies that combat the shadow economy,  impact of the upcoming pilot launch of digital excises
• Pressure from production costs also drove up prices for pharmaceutical products, medical supplies, and equipment.
• Moratorium on raising tariffs for certain housing and utility services for the population continued to curb administrative inflation.

The Producer Price Index (PPI) returned to increasing

• Producer price growth accelerated to 37% year-on-year, with faster price increases in the “electricity, gas, steam supply” sector (65.1% year-on-year) 
• Key impacts: revised electricity transmission service fees by Ukrenergo, higher gas transportation tariffs. 
• Faster price growth in the mining industry caused by both price volatility for steel, iron ore and coal.
• Price growth in food processing slowed slightly due to reduced external price pressures on poultry and pork, as well as lower procurement prices for raw milk.

Key Ukraine’s Industry Insights for February 2025

• Metal production decreased compared to January, but continued to grow on a year-on-year basis thanks to the needs of the defense industry.  
• Some iron ore mines increased their capacities. 
• Growth in the mining industry was limited by the loss of gas infrastructure due to Russian attacks.
• Largest procedures in the chemical industry resumed fertilizer production amid improvements in the energy situation and preparations for the spring planting season.
• The expansion of weapon production, railway cars, and mining equipment supported the revival of the machinery industry.
• Retail kept increasing in both online and offline segments with a stable consumer sentiment.
• Oil processing was restrained due to the shortage of raw materials and the decline in production profitability.
• A continued decline in sea and rail transport to ports due to low stocks of agricultural raw materials. However, the transfer of grain shipments increased at the western border. 
• Warmer temperatures, restoration of logistics, trade, and agricultural infrastructure, contributed to a revival in construction in March.
• Agricultural businesses imported fertilizers, seeds and plant protection products. 
• Imports of machinery products decreased, primarily due to lower purchases of energy equipment. 

Ukraine’s Labor Market in February 2025

• Workforce supply made search for new employees easier. 
• The number of new job vacancies and resumes increased year-on-year
• The number of resumes in the first quarter remained consistently higher than last year. 
• All three trends show that Ukraine’s labor market is undergoing a revival, but the NBU reported that Ukraine is still feeling the labour shortage. 
• Wages continue to grow. “However, the offered salaries have now aligned with the expected ones, which also indicates a gradual easing of the search for workers,” the NBU wrote. 

Fiscal Policy in Ukraine in 2025

• Ukraine spent less in March this year while also earning more on taxes, making the budget deficit decrease. 
• In March, general fund revenues (excluding grants) resumed growth (over 38% year-on-year), primarily due to tax revenues. 
• Grants from foreign aid accounted for over a third of general fund revenues. 
• Financial support from international partners made it possible to finance the deficit in March and increase the reserve of foreign currency funds for the future, the NBU wrote. 
• Government bonds interest rates were higher, but rollover in January-March remained 80% (last year the government bond rollover was estimated at 129% for the same period).