Russian Strikes Could Add Up to 0.6 Points to Ukraine’s Inflation, NBU Says

Russian strikes on Ukraine's civilian logistics and retail businesses could add approximately 0.4-0.6 percentage points to the country's annual inflation by the end of 2026, according to the National Bank of Ukraine (NBU) Deputy Governor Volodymyr Lepushynskyi. These strikes have led to increased rebuilding costs and rising expenses, contributing to the already challenging inflation situation exacerbated by the war in the Middle East, devastating Russian ballistic strikes, and the closure of the Black Sea corridor due to Russian missile attacks on vessels.

In August, Russian forces targeted civilian logistics and the retail sector, intensifying the economic pressure on Ukraine. Inflation has already accelerated to 7.7% annually, with core inflation remaining at 8.1%. Lepushynskyi emphasizes that the economic impact of Russia's strikes has transitioned from a line item in risk forecasts to a tangible element in Ukraine's inflation data.

Russian strikes on enterprises, warehouses, and logistics hubs, coupled with attacks on energy infrastructure and the de facto blockade of maritime shipping routes, have created costs that can be directly measured. These factors raise business expenses, complicate exports, generate increased demand for imports, and exert pressure on prices, currency markets, and corporate expectations.

Despite these challenges, Ukrainian businesses have demonstrated rapid adaptation, rerouting logistics, redirecting exports to alternative corridors, restoring damaged capacity, maintaining the stability of the financial system, and preserving the appeal of the hryvnia as a savings instrument. Lepushynskyi anticipates that most of these effects will manifest in the autumn, although the NBU does not predict a sharp price spike.

The impact will be spread out over time and partially offset by market competition and decreased demand.

Lepushynskyi clarifies that the damage to a warehouse or distribution center does not automatically translate into a one-for-one increase in retail prices. Logistics and storage constitute around 8% of the average consumer price, and competitive pressures limit the extent to which businesses can pass on additional costs to consumers.

The NBU's baseline scenario considered the shelling and rising logistics costs known at the time of the July forecast, but subsequent attacks on logistics infrastructure following the forecast's data cutoff were not accounted for in the initial projections.