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Serbia Watch: Inflation finished 2024 within the target band

Weaker inflation dynamics in December (+0.1% mom) supported a stable annual inflation print (+4.3% yoy). Goods price (+3.5% yoy) halved their dynamics vs December last year (+8%), whilst services prices kept growing (+6.7% vs 6.4% in Dec 2023), mainly due to wages adjustments.

Inflation in the last month of 2024 bottomed at 0.1% mom vs. 0.3% mom in November, supported by the decline in the food and non-alcoholic beverages prices (-0.3% mom), whilst stable prices sentiment across many goods and services. Stable monthly inflation added to steady annualized print (4.3% yoy).

Though the year-end inflation finally entered the inflation target in 2024 (for the first time since September 2021), we had expected the print would be lower. Nonetheless, the adverse and still difficult to estimate weather conditions generated by the climate change have caused frequent droughts negatively impacting supply and prices of the different agriculture commodities and thus preventing a more pronounced inflation slowdown. On the other hand, the stable exchange rate, personal consumption slowdown from H2 2024 and weak import prices have and will further support disinflation throughout the 2025. Despite the aforementioned, food and non-alcoholic beverages prices halved their growth to 4% yoy vs. 8.4% yoy in December 2023. Further, volatile oil prices on the global markets and excises taxes adjustments added to transport prices growth (+2.4% yoy) vs. 1.1% in December 2023.

Encouraging in this regard is the weaker agricultural producers prices growth in November 2024 (+5% yoy), following the double-digit growth in October (+11.4% yoy).

We continue to believe the inflation will remain on a downward path coming to 3.5% at the end of 2025, although there are risks reflected in the uncertain agricultural season and uncertain energy/commodity prices on the global markets. The first interest rate cut is likely to follow in mid-Q2, due to the expected slowdown in core inflation, but will be dependent on the new agricultural season an energy prices.

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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.