Serbia Watch: Surprisingly low inflation early 2021, gradual increase expected
CPI recovered in January (+0.4% mom) after 0.1% mom in December, however the annualized inflation print was a surprise taking into the account traditional season growth in food prices at the beginning of the year. This year inflation starts with 1.1% (December 2020: 1.3%).
| Serbian Consumer prices down in early 2021 (% yoy) |
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| National Statistics, RBI/Raiffeisen Research |
The key drivers of monthly inflation (+0.4% mom) were housing, water, electricity, gas and other fuels (+2.2% mom) and transport prices (+1.3% mom), whereas food and non – alcoholic beverages prices had surprisingly weaker sentiment (+0.1% mom) which might have been attributed to the probably lower demand.
Annualized, the consumer prices index slowed down to 1.1% in January 2021 after 1.3% in December 2020 due to weak food and non – alcoholic beverages prices (+0.4% yoy). Frail inflation sentiment was also supported by less spending on clothing and footwear (-2.2% yoy) and still less business/vacation traveling with transport prices falling by 4.5% yoy. Work from home was still supportive for the communication prices (+7.8% yoy).
The start in massive vaccination - Serbia is leading in this respect in CEE - , the new package of fiscal stimuli recently approved (EUR 2.2 bn) and favorable financing conditions, should support a gradual recovery in aggregate demand and consequently inflation.
Moreover, it is certain that the inflation print will move up supported by rise in oil prices on the global markets and hike in the electricity prices, though will stay in the lower band of the CPI target (3% +/- 1.5pp) amid anchored inflation expectation and a stable exchange rate.
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