Inflation pressures in Ukraine have not subsided despite the central banks decision to keep interest rates high making more cuts in the near term unlikely. Ukraine’s consumer inflation accelerated to 9.6% year-on-year from 8.8% y/y in April and rose to 0.7% month-on-month in May after rising 1% m/m in April, driven mostly by prices for food and transportation, according to the nation's state statistics service Ukrstat.

Core inflation (the consumer basket excluding goods and services with the most volatile prices) slowed to 0.2% m/m growth in May from 0.4% m/m in April. Annual core inflation stayed unchanged at 7.4% y/y.

In May, food prices grew 1.0% m/m (vs. 1.4% m/m growth in April), driven by fruits (11.9% m/m), meat (1.7% m/m) and bread (1.4% m/m). At the same time, egg prices declined 15.3% m/m, and milk prices dropped 1.8% m/m. Prices for transportation increased 1.5% m/m (vs. 1.0% m/m growth in April), driven mostly by prices for gasoline and lubricants (4.0% m/m growth). In addition, prices for alcohol and tobacco grew 1.3% m/m.

Consumer inflation in May was restrained by prices for clothing and footwear, which declined 1.5% m/m (vs. 1.9% m/m growth in April). In addition, prices for housing and communal services declined 0.7% m/m (vs. 1.0% m/m growth in April) due to a 4.2% m/m price drop for natural gas, according to Kyiv-based brokerage Concorde Capital, which forecasts 7.4% YTD inflation for the full year.

The National Bank of Ukraine (NBU) kept rates on hold in June at 17.5% as it has prioritised fighting inflation over boosting growth.

"The decision was required to neutralize inflation risks, which have increased since the previous decision taken in April, and to attain the 5% inflation target next year," the NBU said on its website. Consumer price inflation continues to be above the NBU's in recent months. However, the acceleration is mostly driven by temporary factors, which include higher prices for some vegetables and fuel, the NBU said in a report accompanying the rate decision this month.