Ukraine’s inflation rate is expected to peak at 15% by mid-2025 before dropping to 8.4% by year's end, Ukraine’s Central Bank said on Jan. 31.
Poor harvests and higher wages amid labor shortages are currently driving the rising inflation, according to the bank. Inflation in Ukraine accelerated to 12% year-on-year in December 2024, surpassing the bank’s earlier projections.
Core inflation, which excludes volatile items like food and fuel, rose to 10.7% in December 2024, with service prices increasing by 12.5%. The bank responded by raising its key interest rate to 14.5% to curb inflation expectations.
After peaking in the middle of the year and cooling to 8.4% by year’s end, the bank expects inflation to reach a target 5% in 2025.
The slowdown is expected to be driven by the bank’s interest rate policy measures, currency market stability, a new harvest, a narrowing of the fiscal deficit, and moderate external price pressure.
Ukraine has secured assurances from its international partners for $38.4 billion in financial aid for 2025, including support from the U.S., said Andrii Pyshnyi, the bank’s head. The risk of not receiving the expected funding in 2025 is low, he said.
"External financing, together with the possibilities of the domestic debt market, will allow the government to cover the budget deficit without resorting to emission," Pyshnyi wrote on Facebook.
The bank expects real gross domestic product (GDP) to grow by 3.6% in 2025, with further acceleration to around 4% in the next two years. Growth will come from investments in energy and production recovery, growing domestic demand, and better harvests.
The impacts of the war, labor issues, and low production investment will hold continue GDP growth back.
The bank’s forecast is based on continued international support and a gradual economic recovery, including a return of Ukrainians who fled abroad at the outset of the full-scale invasion, as well as investment growth.
Håvard Halland
