Salaries and interest rates on loans in Serbia must be adjusted to inflation

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The National Bank of Serbia is following the policy of the European Central Bank, and the assessment is based on that that inflation will gradually fall in the second half of the year, Slavisa Tasic, professor of economics, said. He adds that the dinar exchange rate against the euro is de facto fixed, although it is not called that, and that the National Bank says that it targets inflation, and in fact targets the dinar exchange rate against the euro, which is the main instrument of monetary policy.
“The moment we introduced it, our monetary policy follows the monetary policy of the European Central Bank,” Tasic explains. He points out that both salaries and interest rates will have to be adjusted to the growth of inflation.
According to the data of the Republic Bureau of Statistics, consumer prices in December 2021, compared to the same month last year, increased by 7.9 percent. The National Bank of Serbia stated that, according to the NBS projection, year-on-year inflation during the first quarter of this year will most likely continue to move around the level from December 2021. And that a gradual decline can be expected from the second quarter, while it should return to the target limits during the third quarter.
“The euro zone is expected to slowly reduce inflation, which was around five percent there, and a little higher in our country. In Europe, they are already worried, inflation is expected to decrease, but it does not happen within a few months, but over time. That is a forecast in the world, in Europe, and even in our country,” states Slaviša Tasić.
He states that the price of food and energy has the largest share in the growth of inflation in Serbia.
“We have a coincidence of two factors – that the two things that have the largest share in consumption, especially among people with lower incomes, are the most expensive. So in subjective terms, some ‘personal inflation’, especially among people with lower incomes, is even higher,” states Tasić.
He points out that inflation also means an increase in the price of labor, which is wages.
“In our country and in Europe, wages grew more slowly than inflation. Wage growth must, sooner or later, be harmonized with price growth. When and how much – it is still a matter of projections and hopes,” says Tasić.
And loans must “cover” inflation.
If the interest rate is five percent and inflation is 7 percent, the one who gave the loan loses the two percent difference. The loans must, in the end, cover that inflation. Now some interest rates are realistically negative – that means that inflation eats up part of the loan, but it cannot last, it is not sustainable in the long run. Interest rates will have to be adjusted sooner or later – either inflation will fall or interest rates will rise, but in the long run it will have to be adjusted,” states Tasić, N1 reports.