Annual consumer price inflation dropped to 14.8% in May (chart), down from 15.1% the previous month, Serbia’s statistics office said. Month on month, prices increased by 0.9% on average.

The annual figure continues the nascent slowdown since inflation in Serbia peaked in March after a year of strong growth. 

Consumer prices in May 2023 increased by 14.8% in relation to May 2022. Consumer prices in May 2023 in relation to December 2022 increased by 5.3%, on average. 

Broken down by sector, the steepest year-on-year increase of prices noted for housing, water, electricity, gas and other fuels (2.6%) and followed by clothing and footwear (1.7%). Prices of food and non-alcoholic beverages, a significant contributor to inflation over the past year, increased by only 1.4% y/y. 

Meanwhile, a decrease in prices was recorded for both transport (-1.7%) and communication (-0.1%). 

Previously, the Serbian central bank said on June 8 it had decided to raise the key interest rate by 0.25 basis points to 6.25% (chart) to tackle inflationary pressures. The rates on deposit and lending facilities were also raised to 5% and 7.5% respectively.

When making the decision, the executive board estimated that it is necessary to continue with a moderate tightening of monetary conditions. The aim is to prevent inflationary expectations from growing and to ensure that inflation follows a downward trajectory, returning to the acceptable limits set within the projection horizon.

The effectiveness of the transmission mechanism of monetary policy through the interest rate channel was evident in the previous increase in the reference interest rate, the bank said. It successfully affected interest rates on the money market, loans and savings.

While global energy prices, including electricity and gas, along with other primary products, have decreased, inflationary pressures on a global scale remain a concern, the NBS said. 

The executive board highlighted the need for cautious monetary policy, especially considering uncertainties surrounding the duration of the conflict in Ukraine and energy availability and prices in the future.