Serbia Watch: Food prices supporting inflation growing to 16.1% yoy in February
The monthly dynamics in retail prices repeated in February (+1.4% mom) just like it was in January, supported by the ongoing growth in food prices (+2.7% mom). However, the annualized print went to 16.1% yoy after 15.8% in January 2023.
Contrary to the eurozone inflation, which is stabilizing since the end of 2022, retail prices in Serbia are still moving upwards in February (+1.4% mom), this time from food prices (+2.7% mom). Actually, vegetable prices (+8.3% mom) and bread and wheat (+4.5% mom), played a significant role to the inflation surging in February. At the annualized level, inflation went to 16.1% yoy after 15.8% yoy in the month before supported by the prices for food and non-alcoholic beverages (+24.6% yoy), housing, water, electricity, gas and other fuels (+24.0% yoy) and furnishings, household equipment and routine household maintenance (+18.9% yoy). Transport prices have slowed their dynamics further (+6.6% yoy). Goods prices went up by 18.0% yoy, while services prices grew by 10.1% yoy.
Interestingly, import prices have significantly cut their pace in February (+6.0% yoy), down from double-digit territory in December 2022 (+14.6% yoy), obviously from the decelerating eurozone inflation. Furthermore, manufacturing prices fell down to 9% yoy in February, from 12.6% in December 2022. Thus, energy is no longer the key contributor to the high CPI readings amid broad government interventions and the decline in the energy prices on the global markets. Now, the food prices became an important inflation factor in the country due to two consecutive years with droughts, high fertilizer prices and high food prices on the global markets. The FAO food price index has stabilized at 129.8 in February from its peak of 159.7 in March 2022, yet it is still far above the lows before denoted before 2021. Given the expected gas price hike in May and arrival of the new agricultural season, we expect inflation to remain elevated until late spring and to slow down from summer onwards, also being supported by the high base effect. That said, this points again to the possibility that the key rate could surpass our current forecast of 6%. Thus, we put the forecast under revision, waiting also for the ECB meeting this Thursday and then will decide whether there a change in the forecast is warranted.
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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. Thus, her main focus is on the Serbian macroeconomy. She is a speaker at corporate/investors conferences and roadshows organized within the Raiffeisen bank. In her spare time, she enjoys hiking and dancing.
The monthly dynamics in retail prices repeated in February (+1.4% mom) just like it was in January, supported by the ongoing growth in food prices (+2.7% mom). However, the annualized print went to 16.1% yoy after 15.8% in January 2023. |
The Executive Board of the National Bank of Serbia (NBS) continued at an unchanged pace, lifting the benchmark rate by another 25bp to 5.75%. |
As the negative terms-of-trade shock is fading on forward-looking foreign exchange markets, it's back to the usual suspects: inflation, central banks and interest rates. Recent weeks have been characterized by an inflation re-awakening, which triggered a substantial hawkish re-pricing of global central banks. In spite of interest rates moving more or less in tandem on both sides of the Atlantic, the market environment was US dollar positive. In Central Europe this, however, did not prove to be a substantial headwind until now as exchange rates stabilized around rather strong levels. We are cautious that current valuations can endure over the medium-term not least due to narrowing interest rate differentials between the ECB and CE-3 central banks. In Eastern Europe the strong depreciation of the Russian and Belarusian rouble over recent months might have come to a halt and limits the depreciation potential for the rest of the year. In Ukraine, the hryvnia became more balanced and we upgraded our forecasts in response. Also in Serbia the commitment to a stable exchange rate remains strong. This issues features:
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The Serbian economy escaped the recession in Q4 2022, with GDP growing by 0.7% qoq after falling by 0.7% qoq in Q3 2022. In annual terms, the economy lost its dynamics (+0.4% yoy) amid weak performance of agriculture and construction. |
The monthly dynamics in retail prices revived again in January (+1.4% mom, after December’s 0.5% mom) supported by the seasonal growth in the food prices and hike in the electric energy and gas prices. The annualized print jumped to 15.8% yoy after 15.1% in December 2022. |