Q1 inflation "higher than expected"

Inflation in Serbia in the first three months of 2011 will very likely be at 5.5 percent, which is above the expectations of the National Bank of Serbia (NBS). But it is believed that it will fall in the second half of the year, NBS Governor Dejan Soskic has stated. Q1 inflation "higher than expected" At a news conference in Belgrade on Monday, Soskic pointed out that the inflation is expected to drop as of June 2011 at the latest, noting, however, that the prices are expected to go up for some time in the future. "NBS in no way deviates from its goal and it will aim at approaching the inflation target (4.5 plus minus 1.5 percent) by the end of the year. Whether this will be realized one month sooner or later is not as important as securing a low inflation rate, which is in accordance with the targeted projection," Soskic stressed. He underscored that the growth in state-regulated prices from January to March reached 4.7 percent, and when the 7.5 percent rise in electricity price is taken into account, that means that the state has already spent the planned 7-percent growth in regulated prices for the entire year. Soskic stressed that the rise in food prices is still the most significant component of inflation, which, according to Soskic, is troublesome, as Serbia is a country which produces more food than is necessary for its population's consumption. He said that it the authorized state bodies need to implement adequate measures and find systemic solutions which will ensure a greater degree of food price stability. Since the beginning of the year, the dinar has strengthened against the euro by 3.5 percent, which is the result of an increase in the reference interest rate, a slip in the country's risk premium and foreign investors' growing interest in state securities, Dejan Soskic said. At the press conference, Soskic underlined that there will be no major disruptions at the foreign exchange market in the coming period, since the growing trust in Serbia's macroeconomic stability, further strengthened by the arrangement with the International Monetary Fund (IMF), should secure stability at the foreign exchange market. “As regards the national economy, the most advantageous situation would be if the money inflow came from the exports of goods and services, and foreign direct investments. However, the country has recently recorded the inflow of portfolio investments, which do not have to be permanent in nature,” said the governor. Soskic underscored, however, that it is not possible to eliminate shocks which could affect the foreign exchange market, especially not the ones coming from the surrounding countries, as was the case last year during the financial crisis in Greece. Asked if the strengthening of the Serbian currency could have a negative effect on the exports, Soskic said that the reason for NBS intervention in the interbank foreign exchange market aimed at easing excessive daily volatility of the exchange rate, would have to be the strengthening of foreign reserves, which are quite high at the moment. Furthermore, by purchasing euro in the foreign exchange market, the NBS would inject additional liquidity into the system, which is a measure used when the inflation exceeds the upper limit of the target inflation range, Soskic added. In the coming months, a relative stability of the foreign exchange market should start affecting the prices, while this drop is expected to be statistically significant in June-July this year, the governor said. Dejan Soskic (Beta)

Q1 inflation "higher than expected"

At a news conference in Belgrade on Monday, Šoškić pointed out that the inflation is expected to drop as of June 2011 at the latest, noting, however, that the prices are expected to go up for some time in the future.

"NBS in no way deviates from its goal and it will aim at approaching the inflation target (4.5 plus minus 1.5 percent) by the end of the year. Whether this will be realized one month sooner or later is not as important as securing a low inflation rate, which is in accordance with the targeted projection," Šoškić stressed.

He underscored that the growth in state-regulated prices from January to March reached 4.7 percent, and when the 7.5 percent rise in electricity price is taken into account, that means that the state has already spent the planned 7-percent growth in regulated prices for the entire year.

Šoškić stressed that the rise in food prices is still the most significant component of inflation, which, according to Šoškić, is troublesome, as Serbia is a country which produces more food than is necessary for its population's consumption.

He said that it the authorized state bodies need to implement adequate measures and find systemic solutions which will ensure a greater degree of food price stability.

Since the beginning of the year, the dinar has strengthened against the euro by 3.5 percent, which is the result of an increase in the reference interest rate, a slip in the country's risk premium and foreign investors' growing interest in state securities, Dejan Šoškić said.

At the press conference, Šoškić underlined that there will be no major disruptions at the foreign exchange market in the coming period, since the growing trust in Serbia's macroeconomic stability, further strengthened by the arrangement with the International Monetary Fund (IMF), should secure stability at the foreign exchange market.

“As regards the national economy, the most advantageous situation would be if the money inflow came from the exports of goods and services, and foreign direct investments. However, the country has recently recorded the inflow of portfolio investments, which do not have to be permanent in nature,” said the governor.

Šoškić underscored, however, that it is not possible to eliminate shocks which could affect the foreign exchange market, especially not the ones coming from the surrounding countries, as was the case last year during the financial crisis in Greece.

Asked if the strengthening of the Serbian currency could have a negative effect on the exports, Šoškić said that the reason for NBS intervention in the interbank foreign exchange market aimed at easing excessive daily volatility of the exchange rate, would have to be the strengthening of foreign reserves, which are quite high at the moment. Furthermore, by purchasing euro in the foreign exchange market, the NBS would inject additional liquidity into the system, which is a measure used when the inflation exceeds the upper limit of the target inflation range, Šoškić added.

In the coming months, a relative stability of the foreign exchange market should start affecting the prices, while this drop is expected to be statistically significant in June-July this year, the governor said.