Central bank: Inflation lowest in 50 years

The inter-annual inflation in Serbia dropped in June to the lowest level in 50 years, totaling as few as 1.3 percent, the National Bank of Serbia (NBS) said.

Source: Tanjug
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In the first half of the year, inflation oscillated above the target rate of 4 plus or minus 1.5 percent, states the latest NBS report.

The central bank notes that the inflation rate drop was brought about by a reduction of prices for unprocessed foods and agricultural products, the stable exchange rate and low local demand.

In the report, NBS states that the severe floods in May have not significantly impacted the food prices so far.

Despite the floods, Serbia's risk premium was on the drop in May and in the first half of June, when it totalled 220 base points, which was recorded in November 2007 for the last time prior to the latest drop, states the report.

The developments on the international scale such as the reaction of the European Central Bank (ECB) to the crisis in Ukraine, whereby ECB upped the expansiveness of its monetary policy, also contributed to the low inflation rate.

Risk premiums of all countries in the region, including Serbia, additionally dropped in the second quarter of the year. In addition to global factors, the drop of Serbia's risk premium was caused by the announced fiscal consolidation measures.

Due to floods, agricultural and industrial activities recorded a decline and after five subsequent quarterly increases, the country's GDP in the second quarter of the year recorded a 1.1 percent drop on the inter-annual level.

The NBS underscored that the monetary policy primarily depends on the developments in the international environment and on the fiscal consolidation pace and intensity.

Additional fiscal consolidation measures should be implemented in the second half of the year, which will contribute to higher resistance of the local economy to potential external shocks, states the NBS report.

According to the central bank's assessments, the inter-annual inflation rate should return to the limits of allowed deviation from the target rate in the fourth quarter of the year and remain within the allowed deviation range in 2015 as well.

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