Šoškić: ‘The Serbian National Bank reacted to inflation at least nine months too late’

The National Bank of Serbia (NBS) ‘reacted to inflation at least nine months too late’, Dejan Šoškić, professor at the Faculty of Economics in Belgrade and former central bank governor, says.

“Inflation is in double digits with a tendency for further growth and would probably be higher if there was no price capping. This is very worrying,’ Šoškić said and added: “What is particularly worrying to me is that when we look at the NBS projections on the direction in which inflation is going, we see that in the last year, inflation continued to rise and is much more persistent. We have noticed lately in the latest inflation report that the so-called core inflation has also clearly risen. I would say that this is a strong indication that what should have been avoided has happened, which is that inflationary expectations have come true and that now, in order to curb inflation, we need a much more restrictive policy. As a result, we are going to pay a much higher price in the form of a decline in economic activity in the country than if we had reacted in time,’ the professor explained.

Asked where such high inflation leads, Šoškić said it leads to higher interest rates. “It will take us in the direction where interest rates will have to go up. What can happen is that interest rates go up so high that they seriously threaten economic activity and we enter a recession because of that. We see this happening in both the US and Europe. Recessionary trends are ahead of us because of the high-interest rates that central banks are practically promoting,” Šoškić underlines.

He also stated that the announced increase in pensions and civil servant salaries “will not only somewhat compensate for what inflation has already damaged, but will also contribute to its acceleration”.

“When we talk about all these measures that are announced in our country and in Germany, Great Britain and other countries, the following is frequently overseen – if you give everyone linear purchasing power to make it easier to pay heating bills, for instance, this will only produce extra money that can be spent on buying things that are in short supply. So, if you haven’t solved the problem of growing food prices, i.e. gas, oil, food, then that extra money will only push up prices further,” Šoškić adds.

He also underlines that the announced measures should eventually be applied to the population groups that are socio-economically vulnerable.

Šoškić also has a proposal on how to solve this situation in which Europe found itself first: “The cure for these problems that Europe is experiencing is, first and foremost, to find a proper solution for supply. The supply is decreasing and the production of goods that are in shortage needs to go up. Agriculture must be particularly encouraged so that the next agricultural season will be abundant and successful here, in Europe and worldwide. It is too late to do much in other segments and this will probably not be a good year. The second thing is to remove political obstacles to normal trade because the most important characteristic of the current problems is political obstacles to having a free market,” Šoškić concludes.

(Insajder, 13.10.2022)


This post is also available in: Italiano

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