Serbia: Summary of the May Inflation Report
Overview:
The May Inflation Report outlines the sharp fall in both headline and core inflation witnessed in Serbia over the last few months. This is remarkable at a time when the dinar has weakened sharply against both the Euro and the US$. It demonstrates, however, the extent to which domestic demand is weak and the negative output gap growing despite a return to positive GDP growth in Q1 2010. The central bank is confident that inflation will come in on the low side of its 6% inflation target for 2010 and be close to the 4.5% mid-point of the 2011 target. As such, it maintains an easing bias even though it has left rates on hold at 8% at its last couple of meetings. Recent currency weakness may delay or reduce the need for further rate cuts but is unlikely to alter the underlying low inflation story significantly.