Serbia, Electricity and gas will drive inflation

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The National Bank says that their simultaneous increase in price by ten percent would contribute to the growth of retail prices by a little more than half a percentage point.

The price increases do not stop and the prices rise as if there is no end in sight. According to the leaders of the National Bank (NBS), the current inflation level of 15 percent in October is not yet its peak. Prices will rise also because the price increase of energy products has been announced starting January 1, 2023. Electricity by eight percent, and gas by 11 percent, because they are incorporated into everything the economy produces. The NBS says that the increase in the price of electricity and gas for the economy can indirectly affect inflation, because it can transfer part of the increase in energy prices to end consumers.

“Given that this is a relatively moderate increase in prices, which the economy has probably already counted on in its internal plans, we do not expect significant effects on this basis either”, the central bank answered our question about the impact of these price increases on general price growth . By the way, the share of electricity prices for households in the consumer price index for 2022 is 5.1 percent, and the share of natural gas for households in the consumer price index is 0.3 percent.

“Having that in mind, the direct effect of a potential increase in the price of electricity by, say, 10 percent as mentioned in the media on total inflation would amount to 0.5 percentage points, while a potential increase in the price of natural gas by 10 percent would directly affect the growth of inflation by 0.03 percentage points”, they say in the NBS, noting that the media mentioned an increase in the price of gas by 11 percent. The Central Bank regularly makes projections on the trend of inflation, and when preparing the latest ones, published in the November inflation report, it assumed electricity and gas price growth rates that are similar to the above, so they do not expect inflation to be realized on that basis in the next few months. 

“The above-mentioned increases in energy prices for households should not affect the downward trajectory of inflation after the first quarter of next year, which is our official projection.” Therefore, considered together, a simultaneous increase in the price of electricity and natural gas by, say, 10 percent would contribute to inflation by a little more than half a percentage point, which is what we were counting on in principle,” says the NBS.

That the forecasting of inflation and economic growth is ungrateful in these conditions can be seen from their projection, which was published three months earlier, more precisely in mid-August. At that time, the NBS predicted that even in cases of lower world economic growth, as well as a possible interruption of the gas supply to the euro zone, which they called the black scenario, our economic growth would still be maintained at the level of three to three and a half percent of GDP, and that inflation at the annual level for this year will be a maximum of 11.9 percent. Now, the November report talks about economic growth in the range of two to three percent for this and the next year, and assuming that the increase in the price of energy at the world level continues, which is also a dark scenario, inflation could remain in 2023. high, at an annual 14.6 percent, which means that there would be practically no drop in prices.

If it is any consolation, according to the results of the Ipsos survey, representatives of the financial sector expect inflation in October 2023 to be at the level of eight percent. The short-term inflation expectations of representatives of the economy (one year ahead period) in October continued to hover around the level recorded in September of 10 and now amount to 9.8 percent, Politika writes.

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