Consumer inflation has been at or near its peak in recent months, with year-on-year inflation rates falling in Slovenia, Croatia and Serbia, and trends in Bosnia and Herzegovina and North Macedonia also indicating similar dynamics, according to analysts at Bloomberg Adria.
The focus is now more on core inflation (inflation excluding food and energy), which is more a reflection of demand factors, as core inflation rates are approaching their core equivalents.
The difference between consumer and producer prices remains negative, indicating continued pressure on retailers’ profit margins. Despite recent unfavourable weather conditions in the region, global trends continue to show a decline in food prices, as weakening activity and some supply effects (e.g. the opening of Ukrainian exports) are manifesting themselves in agricultural commodity prices.
According to analysts at Bloomberg Adria, the inflation outlook is lower year-on-year rates in the future, mainly due to the high underlying performance, the government’s anti-inflation programmes and a general weakening of economic activity. They added that the inflation is still above multi-year averages given the long-term spillover effects on core inflation elements (categories that are driven more by demand factors).
Overall, analysts at Bloomberg Adria see further interest rate increases by the Central Bank, which will result in higher interest rates on loans to the private sector. HICP inflation in Serbia in August 2022 was 12.8 per cent year-on-year. Serbia saw an increase in inflation compared to July, when it was 12.5 per cent. Among the main reasons is the higher growth in prices of electricity, gas and other fuels (+13.5 per cent compared to +8.6 per cent in July 2022 mid-year). Inflationary pressures peak in the third quarter of 2022.
Year-on-year inflation rates will decrease at the end of 2022 mainly due to high base factors (high base of inflation rates in the second half of 2021). Consumer price expectations for the next 12 months in August fell to 50.4 points, lower than last month’s record high, in line with the government’s decision to extend anti-inflationary measures for September.
The Serbian National Bank raised its benchmark interest rate by 50 basis points to 3.5 per cent and confirmed that rates would continue to rise until the downward trajectory of inflation is reached. Bloomberg Adria expects an increase of at least one percentage point over the next six months. In September, the Serbian government extended a series of measures, such as limiting the prices of fuel, bread, milk and sugar, as well as limiting electricity prices for households, which should somewhat alleviate the expected further price increases at the end of 2022 and the beginning of 2023.
(Bloomberg Adria, 21.09.2022)
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