Serbia: February Inflation Report Summary
Overview:
Inflation has fallen sharply in Serbia over the last few months. The National Bank of Serbia (NBS) expects this to continue in the first quarter of 2012. Inflation could move within the lower band of the target range in this period. It will likely rise in H2 2012 as various temporary factors unwind: administered price increases will be delayed until after the election and a decree restricting trade margins on various necessities expires. There is also the risk that fruit and vegetable prices - which were unusually weak at the end of last year - reverse course. Nevertheless, the NBS sees inflation hitting its target because weak growth and an output gap mean underlying inflationary pressures remain soft. The outlook could deteriorate, though, if the dinar depreciates further and/or fiscal policy loosens ahead of elections in May.