Serbia’s headline inflation, reported under COICOP methodology, decreased to 2.5% y/y in August from 3.2% y/y in July, following the broader disinflationary pattern seen since April, according to statistics office data released on September 14.
Inflation dropped below the medium-term expectations because of supply-side factors, as demand remains subdued. The wage and pension hikes planned by the government after the ongoing negotiations with the International Monetary Fund will likely bring in certain demand-side inflationary pressures. But the overall expectations of annual inflation around 3% p.a. are not at risk particularly if the fiscal consolidation continues.
Annual growth rates above average were posted by alcoholic beverages (+6.3%), transport (+2.9%, as fuels were 5.7% up y/y), communications (+6.4%, amid 17.5% y/y rise in the price of telecom equipment), recreation and culture (+5.9%). The prices of food and non-alcoholic beverages increased by only 2.1% y/y, compared to a much higher 4.2% y/y advance seen in July.
The consumer prices increased by 0.16% in August, a smaller advance compared to the 0.87% m/m in August 2016.
The financial sector and corporates in Serbia expect stable inflation within the target tolerance band (3.0±1.5pp) in July 2018 and 2019, the results of the newest National Bank of Serbia (NBS) Inflation Expectations Survey showed on August 18.
The central bank seems also confident in the consumer price inflation, as it cut the monetary policy interest rate on September 7.
Serbia’s central bank decided to cut the rate by 25bps to 3.75% at its latest monetary policy board meeting after holding it constant at 4% since July 2016. Previously, it had been cut by 1.25pp in five steps in less than one year (August 2015 - July 2016).
Slower expected inflation was factored into the decision on the policy rate cut, the central bank explained in the press release issued after the monetary board meeting. The central bank expects inflation to remain within the tolerance band of 3.0%±1.5pp in the period ahead.