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Serbia Watch: Single-digit inflation print finally in October

The monthly dynamics in retail prices remained stable in October (+0.3% mom) after September’s +0.3% mom. Annualized print slowed to 8.5% yoy vs 10.2% yoy in September.

data in %, yoy
Source: Statistical office, RBI/Raiffeisen Research

Monthly inflation dynamics remained flat at 0.3% mom in October (September: +0.3% mom) supported by no change in food and non-alcoholic beverages prices and slowdown in transport prices increase to 0.2% mom from 1.8% mom in September. Growth in clothing and footwear prices (+1.7% mom), as well as education were due to seasonal factors. Service prices grew by 0.6% mom (September: -0.3% mom), while goods prices grew by 0.2% mom (September: +0.5% mom).

Annualized inflation slowed down considerably to 8.5% yoy after 10.2% yoy in September, finally coming to single-digit territory for the first time since April 2022. The slowdown was underpinned by the high base effect (Oct/22: 15% yoy), but also still weak retail consumption, good agricultural season, stable exchange rate, decline in import prices (-4.9% yoy) and agricultural producers prices (-25.5% yoy).

Food and non-alcoholic beverage prices slowed to 10.5% yoy (September: +14.4% yoy), housing, water, electricity, gas and other fuels grew by 10.7% (September: 15.8%yoy). Goods price went up by 8.9% yoy (Sept: +10% yoy), while services prices grew by 7.1% yoy (Sept: +7.9% yoy).

NBS kept the key rate flat at 6.5% at the meeting held last week, and we expect no rate hike will be made anymore, given that the base effect and the measures implemented so far (rate hikes, increased FX/LCY mandatory reserve rate, price cuts/freeze until the end of the year for 36 food products), will lead to inflation falling further until the end of the year.

Obviously, the measures the government and the NBS, have jointly implemented in the past year and a half, are reaping the results. The hike in the public sector wages and pensions in January and effect of the excises hike in October this year will have a bit of inflationary drive at the beginning of the 2024, though we still view that inflation will enter the inflation target (+3% +/-1.5pp) during the summer 2024 on the back of weak consumption and industry performance.

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Ljiljana GRUBIC

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Ljiljana joined Raiffeisen in 2001 as specialist for banking credit risk analyses, later enlarging its focus to municipalities and insurance credit risk analyses. In 2007 she moved to research team, becoming equity research analysts and afterwards in 2010 expanding its analytical skills to macro-economic analyses, becoming Economic Research Specialist. Her long experience in macro-economic analyses and forecasts was lauded by FocusEconomics awards, three years in a row, and her promotion to Chief Economist role. She is a speaker at corporate/investors conferences and roadshows organized within the Raiffeisen bank. In her spare time, she enjoys travelling and painting.