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Serbia Watch: Visible deceleration in March’s monthly inflation
Significant slowdown in March’s monthly inflation dynamics (+0.1% mom) after February’s 0.5% mom increase was supported by the fall in transport prices (-0.7% mom), but also fall in services prices.
Following the robust monthly prices growth in January (holidays and vacation season driven) and February (excise taxes hike driven and due to the spike in cocoa and coffee price on the global markets), monthly inflation slowed its pace in March (+0.1% mom), slowing the yoy growth to 4.4% yoy down from 4.5% in February. The major driver behind these prices developments were transport prices that fell by 0.7% mom (Feb: +0.7% mom), reflecting the global oil market development, but also a noteworthy deceleration was observed for alcoholic beverages, tobacco and narcotics prices (+0.3% mom) after soaring in February (+2.1% mom).
Food prices have kept a stable pattern this year at 0.5% mom in March, and March’s growth was driven by seasonal growth in fruits and vegetable prices, as well as spikes in coffee and cocoa prices. Overall, goods prices slowed to 0.1% mom after February’s 0.6% mom, whilst services prices fell by 0.1% mom (February: +0.3% mom)
The annualized print had modestly decelerated to 4.4% yoy down from 4.5% in February, being within the inflation target (3% +/- 1.5pp), thanks to the monthly prices slowdown and are below the levels seen in March 2024 print (5% yoy).
The National Bank of Serbia confirmed its inflation projections unchanged at yesterday’s key rate setting meeting, expecting that inflation will be hovering around the upper band of the inflation target (3% +/- 1.5pp) in the coming months, while decelerating in H2 and converging to 3% later on in the projection horizon.
We assume that the inflation slowdown will gain traction in H2, largely attributed to the consumption weakening amid customers expectation on the slowdown in real wage growth as well as uncertainties regarding the local developments and geopolitics. Nonetheless, an important disinflationary factor will be: restrictive monetary policy, the assumption of an average upcoming agricultural season, expected decline in the oil derivatives prices and lower import prices. What is supportive for the inflation trending down is also the stable exchange rate (EURRSD) with temporary depreciation spikes that are offset by the NBS FX interventions. Inflationary expectations for February next year have stabilized at 3.9%, also supporting stable prices sentiment. On the other hand, expected electricity prices hikes for corporate combined with the frosts (affecting agricultural outputs), could keep inflation fixed around the upper band of the target range, throughout spring.
As far as the inflation outlook is concerned, we stick to CPI forecast at 3.5% eop, supported by the expected an average agriculture season and stable EURRSD.
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Ljiljana GRUBIC
Serbia 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.
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