March inflation "lowest in seven years"

March inflation "lowest in seven years"

A negative inflation of 0.3 percent was recoded in March, said Gordana Vukotić-Cotić, associate of Macroeconomic Analysis and Trends (MAT) magazine, adding that this is the lowest inflation since 2007.

As for the basic categories of the market basket which affect inflation, only the prices of energy remained unchanged, while the prices of other categories decreased, she said.

“Foods recorded the greatest price drops thus making the greatest contribution to deflation,” Vukotić-Cotić said.

She said that the year-to-year inflation in March stood at 2.3 percent, the first time this year under the lower limit of the allowed deviation from the target, four plus/minus 1.5 percent.

The price growth stagnated, and the increase of prices of non-food items, energy excluded, has slowed down.

Vladimir Vučković, member of the Fiscal Council, stated that due to deflation tendencies and deceleration of demand, a possibility is being opened for reassessment of the monetary policy.

Low inflation offers an opportunity for gradual, soft depreciation of the dinar without strong effects of transfer on inflation. Thereby, a possibility of faster and unexpected depreciation, which is risky, would be eliminated, Vučković said.

He said at the presentation of the new MAT issue that the question arises whether the current trend of the monetary policy is optimal.

“The definite answer is uncertain since it is connected with the forthcoming fiscal consolidation,” he said.

In order for the NBS to consider the reduction of the reference interest rate, it should first make sure that investors have trust in fiscal consolidation, he said.

“Their reaction is very important and probably for the reason the National Bank of Serbia is waiting to see whether the fiscal consolidation will be convincing enough,”Vučković said.