The growth of industrial inflation in Ukraine during 2024 — early 2025 has become one of the most acute problems of the national economy, creating serious challenges for businesses, consumers, and government policy. Industrial inflation (or producer inflation) is the increase in the general price level of industrial enterprise products, raw materials, components, and intermediate goods used in the production process. It differs from consumer inflation, which measures price changes for goods and services for end consumers.

According to the State Statistics Service of Ukraine, in February 2025, consumer inflation reached 13.4% year-on-year, while annual industrial inflation crossed the 30% level.

The producer price index is one of the key macroeconomic indicators that measures price changes for goods and services at the wholesale level — that is, the prices paid by manufacturers for raw materials, materials, and components. This indicator covers all stages of production — from the extraction of raw materials to finished products — and is an important leading indicator of future inflation. Producer price growth usually precedes consumer price growth, as increased producer costs are eventually passed on to end consumers.

In economic theory, there is a concept of "systemically significant prices" — those that have the greatest impact on the general price level in the economy. Such prices can be grouped into four categories:

1. Energy sector (petroleum products, gas, electricity, etc.).
2. Basic production raw materials (for example, chemical products).
3. Essential goods (for example, food products).
4. Commercial infrastructure.

These sectors have the greatest multiplier effect on the general price level due to their key role in production chains. Price changes in these sectors lead to a cascading effect throughout the economy, as their products are basic resources for most production processes.
For Ukraine, prices for energy and agricultural products are of particular significance. Price increases in these sectors have a disproportionately large impact on the overall inflation rate due to the high dependence of the Ukrainian economy on energy resources and the significant share of food products in the consumer basket of the population.
According to the latest data, the highest growth in producer prices in Ukraine is observed in the following sectors:
● Supply of electricity, gas, steam (+53%).
● Production of pharmaceutical products (+35.9%).
● Food production (+20.6%).
Analysis shows that the current industrial inflation in Ukraine has a complex nature and is caused by the interaction of several key factors:

1. Energy crisis. The dramatic increase in the cost of energy has become one of the most influential factors. In 2024, electricity tariffs for industrial enterprises increased by 94%, which directly affected the cost of production, especially in energy-intensive industries. The situation is exacerbated by systematic damage to energy infrastructure due to Russian attacks.

2. Military actions and logistical constraints. The ongoing full-scale war creates fundamental pro-inflationary pressures at macro and micro levels. At the macro level, this is manifested through a double deficit — budget (≈20% of GDP in 2025) and foreign trade (the foreign trade deficit in goods in 2024 amounted to $29.1 billion). Russian aggression has led to disruption of logistics chains, increased transportation costs, limited access to ports and cross-border crossings, which significantly increased the cost of imported raw materials and export of finished products.

3. Increase in the cost of raw materials and supplies. During 2023-2024, prices for key production materials increased significantly:
● Metal alloys — +63%.
● Polymers and sealing materials — +52%.
● Connecting elements and components — +58%.

4. Labor shortage and increased labor costs. Large-scale population migration due to the war, mobilization, and demographic problems have led to an acute shortage of qualified personnel. This, combined with an increase in the minimum wage, has significantly increased the payroll of enterprises.

5. Currency fluctuations and imported inflation. The devaluation of the hryvnia and global economic trends have caused an increase in the price of imported components, which is especially noticeable for industries with high dependence on imported raw materials and components.

6. Depletion of remaining stocks. In 2023, manufacturing enterprises could still sell products at relatively lower prices, as they used materials purchased before the start of the full-scale invasion. However, in 2024, these stocks were depleted, and companies were forced to purchase new materials at significantly higher prices.

7. Increased taxes for businesses at the end of 2024.
An important feature of the current industrial inflation in Ukraine is its predominantly structural rather than monetary nature. This means that it is caused not by excessive money supply, but by fundamental changes in the structure of production and supply of goods and services.

The structural nature of inflation is confirmed by the asymmetric price growth in different sectors. The largest increases are observed in the energy sector, the production of basic raw materials, and the food industry — precisely in those industries that are defined as systemically significant for price stability.

This type of inflation cannot be effectively regulated only through traditional instruments, such as increasing the key policy rate. The NBU raised the key policy rate to 15.5% in March 2025, but this will have only a limited impact on industrial inflation.

High industrial inflation negatively affects the competitiveness of Ukrainian enterprises in international markets. The increase in the cost of production cannot always be compensated by price increases without losing market positions, especially in conditions of global competition.

The reduction in business margins due to inflationary pressure limits the investment potential of Ukrainian enterprises. The initial price increase causes a spiral of further increases due to the attempts of various economic agents to compensate for their losses. In the Ukrainian realities of 2024-2025, this effect manifests itself in two main areas:

1. Wages and inflation. The increase in consumer prices leads to demands for an increase in nominal wages to preserve the real incomes of workers. This, in turn, increases the enterprises' labor costs, which is passed on to product prices.
2. Enterprise profits and inflation. Companies try to maintain their profit margin by raising product prices in proportion to the increase in costs. This creates additional inflationary pressure, especially in sectors with limited competition.

Initial price shocks in the energy sector, agriculture, and basic industries create a multiplier effect on the entire economy, triggering a process of mutual increase in prices and wages.

How to overcome industrial inflation?

In the context of high industrial inflation, enterprises can apply a number of strategies to minimize the negative impact on their activities:

1. Long-term contracting of raw materials. Concluding long-term contracts with suppliers allows fixing prices and stabilizing production costs. Practice shows that enterprises that use forward contracts and long-term agreements can significantly reduce the volatility of raw material costs.

2. Optimization of energy consumption. In conditions of a rapid increase in the cost of energy, the implementation of energy-efficient technologies becomes critical:
● Investments in the modernization of equipment with higher energy efficiency.
● Implementation of automated energy management systems.
● Transition to renewable energy sources.
Such measures can reduce energy consumption by 15-30%, which significantly reduces overall production costs.

3. Localization of production and import substitution. Replacement of imported materials and components with domestic analogues reduces dependence on currency fluctuations and external price shocks.

4. Automation and digitalization of production. The implementation of modern technologies allows:
● Reducing losses of raw materials and materials in the production process.
● Reducing labor costs.
● Increasing productivity and resource efficiency.
Investments in production automation, although requiring significant initial investments, provide long-term savings in conditions of increasing labor and raw material costs.

5. Flexible pricing policy and differentiated pricing. Constant monitoring of market trends and the use of dynamic pricing allows enterprises to adapt to changes in costs and demand, minimizing losses from inflationary processes.

Short-term and medium-term trends

In the short term, further growth of industrial inflation with subsequent stabilization is expected in Ukraine. Annual industrial inflation will continue to accelerate and may reach 40% in the coming months, which will create pressure on consumer prices.

The main factors that will determine the dynamics of industrial inflation in 2025-2026 will be:

1. Energy situation. The possibility of stabilizing the energy sector will depend on the intensity of military actions and the success of restoring damaged infrastructure.
2. Currency stability. With the preservation of international financial support and adequate monetary policy, there is potential for stabilizing the hryvnia exchange rate, which will reduce inflationary pressure from imported goods.
3. Situation in global commodity markets. A potential reduction in prices for key commodities in world markets, particularly for gas and oil, may partially offset inflationary pressure from internal factors.

In the medium term (1-3 years), a gradual decrease in industrial inflation is possible under the conditions of:
● Stabilization of the security situation.
● Successful implementation of energy efficiency and energy independence programs.
● Structural reforms aimed at increasing productivity and economic competitiveness.
Paradoxically, the current inflationary crisis may become a catalyst for positive structural changes in the Ukrainian economy. High prices for energy and raw materials create incentives for:

1. Accelerated decarbonization and energy transition. The increasing cost of traditional energy sources makes investments in renewable energy economically attractive, which can accelerate the energy transition.
2. Implementation of resource-efficient technologies. Rising raw material prices stimulate enterprises to implement technologies that ensure more efficient use of resources, including closed-cycle technologies and material reuse.
3. Development of innovative business models. Inflationary pressure forces enterprises to look for new ways to create value with lower resource costs, which promotes the introduction of automation and artificial intelligence in production processes, as well as other innovative business models.

Conclusions
Traditional monetary instruments demonstrate limited effectiveness in the conditions of the structural shock in which our state finds itself. A comprehensive approach is needed that combines macroeconomic measures with targeted support programs for systemically significant sectors and stimulation of transformational processes in business.

For enterprises, the key strategies for adapting to high inflation are energy efficiency, localization of production, process automation, and flexible pricing policy. These measures allow not only reducing the negative impact of inflation on profitability but also increasing long-term competitiveness.