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Strong Inflationary pressures in Serbia

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Serbia’s consumer prices rose again by 1.4% mom in January 2011 (December: +0.3% mom), the highest record after the 1.4% mom inflation trace in August 2010. The key growth triggers in January were alcohol and tobacco (+7.7% mom), transport (2.4%) and food & beverages (by +1.9% mom).

Consequently, CPI came in January 2010 – January 2011 to 11.2% yoy (Jan 09/10: 4.8% yoy), thus beginning the year above the targeted range of the National Bank of Serbia (NBS) for January 2011 (5.9% +/-2).

Our assessment: Part of the increase came as a result of the delayed price corrections from December due to the technical issue of the budgeting process (avoiding new pricing in the last month of the year). In addition, traditionally January is a month for the reconciliation of the excises on tobacco with the inflation rate. For 2011 we expect inflation to reach 7.5% yoy, while NBS is sticking to its target (4.5% +/-1.5). On the next Executive Board session (scheduled for 10 March) we do not expect moves in the key rate, since dinar sterilization via sharp interventions on the interbank market in H2 2010 (backed by the new decision on the bank’s reserve requirement) resulted in a rather strong dinar from the beginning of 2011 (2.6%), along with high interest for dinar T-bills. Interest rates on these issues declined substantially and close to the key rate, clearly indicating that market would not have any positive effect from a new rate hike. However, it will take some time for the inflationary expectations together with pressures to cease.

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Source : bne

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