The state and retailers have reached an agreement to lower prices for 20 products from the mid-week.
Although this is seen as a good measure generally, Pavle Medić, an economist at CEVES, says that reducing the prices will not knock down inflationary expectations at all.
Medić adds that that is more of a measure to appease the population rather than a part of the government’s anti-inflationary policy. “These 20 products are essentially inferior substitutes for certain products, meaning products of lower quality. Other countries have also applied such measures. For example, France, reduced the prices of 5,000 products, but because of such a wide coverage of these price reductions, there wasn’t a need to cut the prices so drastically”, he says.
Medić explains that an additional problem is that this policy will have to be abandoned at a certain point: “It would be a much better policy to freeze or slow down price growth on a wider scale than to drastically reduce it on a smaller scale”.
Medić wonders what will happen when the agreement between retailers and the state ceases to be valid and when prices are returned to their previous level (60-70 percent higher).
“In October, there is going to be an eight percent increase in excise duty and in November, an increase in the price of electricity and gas. Then there are fiscal policy measures, from salary increases to universal benefits, which are fuelling inflation. It seems to me that the current policy is pro-inflationary, not anti-inflationary,” Medić adds.
Also, he states, Serbia’s largest trade partners are from the European Union – Germany, the Czech Republic, Hungary, Austria, Poland – and we mostly export to their automotive industry. All these countries recorded negative growth rates during the second quarter. “We will see how that will spill over to the demand for industrial products in Serbia. I am primarily referring to the automotive industry since 80 percent of our FDI portfolio is automotive,” says Medić.
“And thirdly, it seems to me that Serbia is still postponing the fight against inflation because there are still no serious inflationary measures. We will have to do that at some point. I think it will happen next year, and then it will come at a certain cost to our economic growth,” Medić concludes.
(Bloomberg Adria, 12.09.2023)