Supported byOwner's Engineer
Clarion Energy banner

What is hiding behind the late inflation in Serbia?

Supported byspot_img

The growth of prices in the world is slowing down due to the cheaper energy sources, while Serbia later started to increase the prices of electricity and gas.

Food and energy prices on the world market are falling, and inflation is consequently calming down in major economies such as the United States of America and the European Union. In our country, price increases are not abating and inflation reached 16.2 percent in March. Is that the reason why increase in food and energy prices does not meet the criteria as the reason for our price increases and are domestic specifics the real reason for the mentioned 16.2 percent.

Milojko Arsić, a professor at the Faculty of Economics in Belgrade, says that the rise in food and energy prices had a significant impact on inflation in Serbia until the middle of last year. Since then, inflation can no longer be justified.

Supported by

Our inflation is higher now, because we started raising the price of electricity and gas later than other countries. This is a consequence of the economic policy conducted in Serbia. The cause is also excessive expansionary fiscal and monetary policy, which during 2020 and 2021 contributed to a small decline in the gross domestic product. In other words, a lot of money was distributed to citizens and the economy, and incomes grew faster than production. The total amount of assets grew faster than production, so that caused demand to grow faster than supply. And now we have that delayed effect”, says Arsić.

He adds that inflation in the USA stopped during last year, similarly in Europe. One is the amount of year-on-year inflation, and it is interesting to compare the amount of inflation here and there for the last three and six months. Here it is higher than in other countries. In the USA, it has been zero since mid-2022, in Europe, since October and November, it has been oscillating, sometimes falling, sometimes rising.

“When we import problems from the world, it is emphasized and overemphasized, and when some things are the result of our policy, then it is silenced and attributed to international factors,” explains this economist. He expects that from the middle of the year, inflation will begin to slow down considerably in comparison to the previous months. An additional shock will come when electricity and gas prices rise in May.

Mihailo Gajić, program director of the Libeka research unit (Libertarian Club), notes that imported inflation, and that which is a consequence of money printing, is definitely the biggest component.

Supported by

“As the European Central Bank printed huge sums of money during 2020 and 2021, those funds also arrived in Serbia. In order not to put pressure on the dinar’s strengthening, the NBS printed dinars as much as euros came in. That’s why we can talk about imported inflation and it amounts to two thirds, and the remaining third is a consequence of our local characteristics in terms of how the economic and monetary policy was conducted”, says Gajić.

He adds that he does not like to forecast when inflation will calm down in our country, because tomorrow the economists have to explain why their forecasts did not come true. Another reason is that there are still too many factors that are not necessarily just economic that affect price increases.

“When talking about the drop in inflation, many ask when prices will return to their old level.” Falling inflation does not mean that, but rather that prices will grow more slowly, and will not return to what they were two or three years ago”, explains this economist.

The National Bank of Serbia (NBS) states that since the beginning of the year, inflation in our country has moved in line with their projection, according to which the peak of inflation is expected in the first quarter. In March, it was 16.2 percent year-on-year, and in the second quarter, they expect first a gradual, and then a faster slowdown in the second half of the year, so that at the end of the year, inflation would be at half the current level, and by the middle of 2024, it would return to the target limits.

“When it comes to inflation in the euro zone and the US, it did slow down in March and was 6.9 percent year-on-year in the euro zone and five percent year-on-year in the US.” Moreover, in both cases the slowdown in inflation was mainly driven by lower energy prices, which in March, partly due to the high base from March 2022, recorded a year-on-year decline (minus 0.9 percent in the euro zone and minus 6.4 percent in the USA ).

The increase in the price of energy products in Serbia has also been slowing down since the beginning of the year, whereby the prices of oil derivatives in recent months, following the drop in world oil prices, have almost dropped to the level of March 2022 (the year-on-year increase in the prices of oil derivatives was 1.8 percent in March) . On the other hand, Serbia later started to increase electricity and gas prices because the country took the burden of the energy crisis on itself during 2022, in order to preserve business, consumer and investment confidence at a high level and not to introduce additional uncertainty, which slows down the decline the price of energy compared to other countries”, it was said from the central bank.

When we talk about core inflation (total inflation without food and energy), it accelerated in March both in the euro zone and in the USA by 0.1 percentage points to 5.7 percent year-on-year in the euro zone and to 5.6 percent year-on-year in the USA , which indicates that certain inflationary pressures are still present and have proven to be more resilient than was thought at the beginning of the crisis.

Looking at the structure of the commodity exchange, it is precisely the products from the base inflation group that Serbia trades the most and the prices of those products have the greatest impact on our import inflation, which is certainly one of the reasons why it did not start a year-on-year decline in Serbia in the first quarter of this year. Just as it took some time for the increase in cost pressures and the rise in energy prices after the outbreak of the energy crisis and the war in Ukraine to be transferred to our economy, it also takes some time to feel the full disinflationary effect of the declining global cost pressures that is happening around the world. And which should be seen to a greater extent here in the second half of the year, according to the NBS.

 

Sign up for business updates & specials.

Supported by

RELATED ARTICLES

Supported byClarion Energy
spot_img
Serbia Energy News
error: Content is protected !!