CPI inflation accelerated to 2.4% y/y in January from 1.6% y/y the month before, thus moving within the new target tolerance band of 3.0±1.5% of the NBS, according to the latest data of the Serbian statistical office. In monthly terms, consumer prices increased by 1.4%, recovering to growth after two months of decline.
The main upward pressure on the headline index came from transport, food, alcoholic beverage and tobacco prices. Transport price growth accelerated to 5.8% y/y in January amid rising crude oil prices and reversing base effects. Food and non-alcoholic beverage prices also had a positive contribution to the index. These prices were up by 3.1% m/m on the back of strong rise in vegetable prices and their annual growth sped up to 1.2% y/y in January. As we expected, alcoholic beverage and tobacco prices also exerted upward pressure on the index in January reflecting the new higher excise duties. Recreation and culture prices also had a minor positive contribution, whereas the developments in prices in other groups had virtually no impact on the headline index.
The central bank projected that CPI inflation will enter the new target band in Q1, driven primarily by higher prices of petroleum products and cigarettes. The NBS said that low base effect from fruit and vegetable prices, gradual increase in domestic aggregate demand and inflation abroad will help push inflation within the target band. On the other hand, low food production costs and the high base for petroleum product prices from March onwards will continue to act disinflationary for some more time. The central bank assumed that electricity prices will go up by 3.8% in 2017, the same as in 2016, but underlined that it did not know whether these prices will be actually adjusted.