Serbia's consumer price inflation slowed to 2.2% y/y in October from 4.9% y/y the month before on contracting food and transport prices, the statistics office said in a statement. Lower growth of alcoholic beverages, housing charges and furnishings also helped curb the overall index growth in October. The annual CPI inflation fell below the lower bound of the central bank’s (NBS) target tolerance band of 2.5-5.5%, touching its lowest level since January 2007 (latest available).

This is not unexpected and inflation will return within the NBS target band in November, the NBS said in a statement. It will remain moderate in the coming period reflecting weak domestic demand while the forthcoming increase of the lower VAT rate to 10% from 8% will have only one-off impact on prices, the NBS also noted.

In monthly terms, the CPI edged up 0.2% in October after recording 0.0% m/m growth in September.

Food and non-alcoholic beverages prices swung to a 3.0% annual drop in October following a 0.4% y/y rise the month before dragged down by falling meat, bread, fruit, vegetables and oil and fats costs. Transport costs remained in the red, shrinking 2.7% y/y in October following a 1.6% y/y drop in September mainly due to falling fuel charges.

Housing, water, electricity, gas and other fuel prices rose 8.5% y/y in October, slowing from a 10.6% y/y hike the month before due to cooling electricity gas and other fuel costs. Furnishings and household equipment prices grew 5.1% y/y in October likewise easing from a 7.0% y/y rise in September.

Alcoholic beverages and tobacco charges y/y growth sank to 10.2% y/y in October from a 21.8% rise in September.

Serbia’s CPI inflation accelerated in the second half of 2012, mainly reflecting rising food prices due to the poor agriculture season last year. It started slowing since February 2013,due to past restrictive monetary policy measures, weak demand and lower food production costs due to good weather conditions.