### Inflation in Ukraine During the War: Dynamics, Causes, and Consequences


Russia's full-scale invasion of Ukraine, which began on February 24, 2022, has posed an unprecedented challenge to the Ukrainian economy. One of the key indicators reflecting the state of the economy during wartime is inflation. Rising prices for goods and services, driven by the destruction of infrastructure, disrupted supply chains, the devaluation of the hryvnia, and other factors, have become a serious issue for the state and its citizens. This article examines how inflation in Ukraine has evolved during the war, the factors influencing it, and the prospects awaiting the country in the future.


#### The Start of the War and the Initial Shock (2022)
In 2022, when the war broke out, Ukraine’s economy suffered a significant blow. According to the State Statistics Service of Ukraine, inflation reached 26.6% year-on-year by the end of the year (December-to-December). This was the highest level in recent years, though it fell short of the government and National Bank of Ukraine (NBU) forecasts, which had predicted price increases of up to 30%. This inflation rate was driven by several key factors.

First, the war led to a sharp decline in production. Many enterprises in eastern and southern Ukraine were destroyed or ceased operations due to hostilities. Experts estimate that Ukraine’s GDP shrank by 29.1% in 2022, marking the largest decline in the country’s independent history. The reduced supply of goods on the market naturally pushed prices upward. Second, a logistical crisis emerged: the blockade of seaports halted grain and other exports, while internal transportation was hampered by damaged roads and railways. Third, the devaluation of the hryvnia played a critical role: in July 2022, the NBU raised the official dollar exchange rate from 29.25 to 36.57 UAH/USD, immediately affecting the cost of imported goods.

However, inflation could have been even higher without certain mitigating factors. Open borders with the West allowed imports to offset domestic shortages. Additionally, substantial international financial aid—over $28 billion in 2022—supported the population’s purchasing power. A moratorium on utility tariff hikes, enacted in August 2022, also prevented a sharp rise in administratively regulated prices.

#### 2023: Inflation Slows Down
In 2023, the situation began to stabilize gradually. Consumer inflation dropped to 12.8% in June compared to the same period the previous year—the lowest level since the war began. The NBU noted that this decline was driven by an increased supply of food products due to a new harvest, improved logistics, and a stable energy sector following repairs to damaged infrastructure. For instance, vegetable and fruit prices fell due to seasonal factors, while the tariff moratorium continued to curb administrative inflation.

However, in the second half of 2023, inflation began to accelerate again due to rising global energy prices and the gradual devaluation of the hryvnia. By year-end, the NBU estimated inflation at around 14.8%, below earlier projections (18.7%), but still indicative of persistent inflationary pressure.

#### 2024: A New Peak
Throughout 2024, inflation in Ukraine continued to rise, reaching 11.2% in November year-on-year. Consumer prices increased by 1.4% in December, totaling 12% for the year. In January 2025, the trend persisted: inflation accelerated to 12.9%, with prices rising by 1.2% in a single month. These figures reflect the impact of administratively regulated prices, particularly electricity tariff hikes, as well as rising energy and labor costs.

The NBU forecasted that inflation would peak in 2025 before starting to decline. However, experts warn that risks remain high due to potential increases in excise taxes, VAT, and further hryvnia devaluation. For example, in January and February 2025, the NBU sold $3.8 billion and $3 billion, respectively, to stabilize the exchange rate, signaling pressure on the currency market.

#### Drivers of Inflation During the War
Inflation in Ukraine during the war stems from both monetary and non-monetary causes. The former includes hryvnia emission to cover budget deficits: in 2022, the NBU purchased a significant portion of domestic government bonds, increasing the money supply. Non-monetary factors include:
- **Rising production costs**: due to infrastructure destruction and higher fuel prices.
- **Imported inflation**: wartime reliance on imports amplified the impact of global prices.
- **Inflationary expectations**: instability fueled price increases through consumer and business behavior.


#### Consequences and Outlook
High inflation erodes the purchasing power of the population, particularly vulnerable groups, and complicates economic recovery. At the same time, low inflation, such as the 0% recorded in July 2024, may signal declining demand—a negative sign during wartime. The NBU aims to bring inflation back to its 5% target in the medium term, but this depends on the war’s duration, the volume of international aid, and hryvnia stability.

Forecasts suggest the economy will grow by 3.4–3.6% in 2025, though inflation will remain a challenge. One way to mitigate its effects could be the use of innovative financial tools like NuonFinance (https://x.com/NuonFinance), which enable citizens and businesses to manage funds more effectively and protect savings from depreciation.