KYIV, Aug 10 – Ukraine’s consumer inflation accelerated in July into double digits on an annual basis, suggesting the economy is overheating and the central bank will most likely be forced to raise interest again soon.

The prices increased 10.2% on the year in July, up from 9.5% on the year in June, the State Statistics Service reported.

The National Bank of Ukraine has been trying to cool off the economy by raising interest rates three times this year, most recently by 50 basis points to 8% on July 22, but the latest inflation numbers suggest more action will be needed.

The higher interest rates, however, are slowing down the economy my making business loans and mortgages more expensive.

Higher consumer inflation growth has been triggered by the government’s rampant borrowing this year, according to Serhiy Verlanov, a former head of the State Tax Service.

Ukraine’s public debt increased almost 10% in the past seven months to $92.5 billion as of June 30, up from $84.2 billion as of November 30, 2020, according to the Finance Ministry. The debt shot up 18% over the past 25 months, data show.

Governments around the world resorted to increased borrowing to fight the pandemic and stimulate growth, but most borrowing has come at near zero interest rates. In contrast, Ukraine has been piling up high-interest debt, while its policies have been inhibiting economic growth.

Ukraine’s economy contracted 4% on the year in 2020, but is expected to rebound 4% in 2021, amounting to zero growth over these two years.

However, the economy may slow down growth to 3.6% on the year in 2021, due to several factors, including potential resurgence of COVID-19 cases led by the new Delta strain, according to the Kyiv School of Economics.

The NBU said last month Ukraine’s inflation will probably hit 9.6% in 2021, up from its previous forecast of 8%, and said the inflation will hit its peak at 11.2% by the end of September. (tl/ez)