Kosovo’s annual CPI inflation remained unchanged at 2.6% in March 2013, statistics office data showed. The average annual inflation for the 12-month period ending in March speeded up by 0.2pps to 2.8%. On a monthly basis, consumer prices were the same as in February.

Food prices, which have the heaviest weight in the consumer basket, rose 3.1% y/y in March following a 3.9% y/y increase in February 2013. Beverages and tobacco prices were 8.2% higher on the year, down from 8.7% a month earlier. Housing, water, electricity, gas and other fuels prices edged up 2% y/y in March after falling 0.6% y/y in Feb.

The IMF forecasts 2.2% average inflation in 2013 in its April 2013 country report on Kosovo.

IntelliNews Comment: Inflation in Kosovo closely mirrors the development of global agricultural prices, given the agriculture sector's high import dependence. Since the food component accounts for 37.8% of the CPI basket and 26% of all imports are food related, the country is very susceptible to food price shocks.

The food price index of the United Nation's Food and Agriculture Organisation, which measures the monthly change in international food commodities prices, was down 1.7% y/y and up 1% m/m in March. In addition, under the World Bank's baseline scenario presented in its January 2013 Commodity Market Outlook, agricultural prices are forecasted to decline 3.2% in 2013.

On the other hand, considering the Eurozone’s debt problems a downward exchange rate movement of the euro could make imports more expensive for Kosovo, thus potentially leading to a slightly accelerating inflation.