Serbia: May Inflation Report Summary
Overview:
The National Bank of Serbia (NBS) admits for the first time in its May Inflation Report that inflation will overshoot its target for 2011. It maintains its view, however, that the vast majority of the sharp increase in inflation seen in the last nine months has been the result of food prices increases (both primary and processed). Given a more normal harvest, then, it is reasonable to assume that inflation should start to fall in the second half of this year quite significantly. Moreover, a stronger than expected dinar should assist this disinflation process. The inflation projection for the end of 2012 sees the NBS’s target being met. Hence, the central bank has moved from a tightening to a more neutral bias. It is clear that any further rate hikes could strengthen the dinar further and risk reducing export price competitiveness.