In Serbia, despite a gradual decrease in inflation, citizens continue to feel economic pressure, particularly when shopping. Officials attribute this pressure largely to import inflation, but economists now emphasize that food and energy prices are no longer the primary drivers. Serbia still maintains one of Europe’s highest inflation rates, recently falling to the upper limit of its 4.5% target corridor for the first time in nearly three years as of May.
Economists project further decline, anticipating a year-end drop to 3.5% year-on-year. However, they caution that any significant rise in prices of essential goods like energy and food could temporarily spike inflation. They note that the main contributors to inflation now include base inflation driven by labor costs, fiscal policy, and monetary policy.
Veroljub Dugalić from the Faculty of Economics in Kragujevac suggests that Serbia is unlikely to see interest rate cuts and expects inflation to stagnate. He highlights the market’s sensitivity to upward price movements compared to its resistance to downward adjustments, attributing this to structural issues and limited market competition.
Dugalić also points out ongoing concerns regarding food and energy prices, exacerbated by unpredictable weather conditions and geopolitical tensions affecting oil supply. In contrast, Ljubodrag Savić from the Faculty of Economics in Belgrade believes that this year’s agricultural yields won’t significantly impact food prices due to Serbia’s reliance on imports from global markets.
Regarding interest rates, Savić criticizes high reference rates set by banks, which he argues signal a lack of confidence in long-term inflation control efforts. He suggests this perpetuates a cycle of high inflation expectations among businesses, undermining efforts to lower inflation rates.
Discussing labor costs, Savić notes shortages in certain industries driving up wages, though he acknowledges that Serbia’s labor costs remain among the lowest in Europe when adjusted for purchasing power. He warns against the deceptive effects of currency exchange rates, which may mask real declines in purchasing power over time.
Overall, Serbia faces complex economic challenges requiring nuanced policy responses to stabilize inflation and support sustainable economic growth amidst global uncertainties.
