Examining Inflation Expectations in Ukraine
A new study by the National Bank of Ukraine (NBU) analyzes the anchoring of inflation expectations in the country from 2006 to 2025. Titled 'Anchoring of Inflation Expectations in Ukraine: Assessing Resilience to Shocks and the Degree of Anchoring Using a VAR Approach,' the paper was published in the scientific-analytical journal 'Visnyk of the National Bank of Ukraine.' Authors Vitaliy Kramar and Bohdan Chepyha investigate how business inflation expectations react to price shocks and to what extent these expectations align with the NBU's official 5% target. This research is crucial as stable expectations are a cornerstone of effective monetary policy.
Key Findings of the Research
The study concludes that the inflation expectations of Ukrainian businesses are fairly resilient to temporary price shocks. However, their established long-term inflation outlook significantly exceeds the NBU's 5% target. The resilience of expectations to shocks remained relatively stable throughout the entire assessment period. Meanwhile, the long-term inflation outlook improved notably after the adoption of the inflation targeting regime in 2015 and the subsequent decline in inflation. Yet, this outlook deteriorated again under the influence of the COVID-19 pandemic and Russia's full-scale invasion of Ukraine.
Consequently, the study underscores the importance of monitoring inflation expectations, as they can influence economic stability. Understanding their resilience to external shocks is key to formulating effective economic policy in Ukraine.
The results of this research can form a basis for the National Bank of Ukraine's future actions in supporting price stability. Taking business inflation expectations into account will allow for more precise responses to potential economic shocks and enable the adaptation of monetary policy to the real needs of the market. This is significant for both businesses and consumers, as price stability impacts overall economic well-being.