Serbia’s consumer price inflation retreated to 9.9% y/y in May from 11.4% the month before mainly due to a slower food and non-alcoholic beverages price growth (34.5% of the basket), data from the statistics institute showed. Household equipment and transport prices also eased, helping curb the overall CPI. The latter recorded a single-digit y/y growth rate for the first time since August 2012. In monthly terms, CPI inflation was 0.0% m/m compared with a 0.8% growth in April.

Prices of food and non-alcoholic beverages increased 12.7% y/y in May, easing from the 16.2% rise a month earlier mainly on lower fresh vegetable prices. The onset of the new agricultural season will likely help cut food prices in the near term.

On the other hand, alcoholic beverages and tobacco prices growth remained high at 29% y/y in May despite edging down from 30.5% in April.

The central bank (NBS) expects annual inflation to return within its target tolerance band of 2.5%-5.5% by October 2013 supported by the onset of the new agriculture season and low aggregate demand. The disinflation process will also depend on budget austerity measures implemented by the government in the coming months, the NBS said.

We note that in case the weakening of the local dinar currency against the euro continues, this could possibly impact import prices, creating pass-through effects to inflation as the Serbian economy is highly euroised.