Serbia: Food prices drive inflation

The Macroeconomic Analysis and Trends (MAT) journal of the Belgrade Institute of Economics reports that the inflation in Serbia accelerated on a m-o-m and y-o-y basis in February, and one of the main reasons was the rise in food prices. In January and February 2022, m-o-m inflation of 0.8% and 1.1% was registered, as well as y-o-y inflation of 8.2% and 8.8% respectively, reports MAT. Food prices increased by 13.5% y-o-y in January, 15.2% y-o-y in February. At the same time, unprocessed food went up by as much as 26.3%.

Serbia had higher y-o-y inflation than the EU average in both January and February 2022, and lower y-o-y inflation than five EU member states. In January and February 2022, y-o-y inflation was 8.2% and 8.8% in Serbia, and 5.6% and 6.2% respectively in the EU. Compared to Serbia in January, Belgium (8.5%), Poland (8.7%), the Czech Republic (8.8%), Estonia (11.0%) and Lithuania (12.3%) had higher y-o-y inflation, and in February the figures were higher in Belgium (9.5%), the Czech Republic (10.0%), Estonia (11.6%) and Lithuania (14.0%).

In the first two months of 2022, Serbia’s export totaled €3.7 billion, stated the Statistics Office of Serbia. It said that exports were 26.8% higher than in the same period a year earlier and added that imports rose by 51.7% to stand at €5.5 billion. Serbia’s total foreign trade in those two months stood at €9.2 billion or 41.1% more than a year earlier.

The deficit also rose compared to 2021 by 154.6% to stand at €1.7 billion. Foreign trade was the highest with the countries Serbia has free trade agreements with: the member states of the European Union, accounting for 61.5% of the trade and CEFTA countries coming in second with a surplus in trade of €322.6 million.

The economist Mr. Stojan Stamenkovic pointed out a striking trend, i.e. the growth of foreign trade and within it, the explosion of imports, which in the first two months of this year more than doubled the growth of exports. The main components of this growth were the import of crude oil and gas, coal and oil derivatives, chemical products and electricity. Mr. Stamenkovic added that the issue of changing economic flows in Serbia due to the war in Ukraine and the effects of the US and the EU sanctions imposed on Russia will now also affect the economy. The economist has warned that the current events in Ukraine suggest that the situation will get worse rather than better.

Professor Dejan Soskic from the Belgrade School of Economics says that the growth of the price of energy sources will not be short-term. The professor explains that the effects of the war will spill over into the rest of the economy through the reduction of economic activity and the pressure on the growth of prices.

Professor Soskic notes that it is difficult to estimate the wider consequences of the war in Ukraine, but adds that the development of events in the Ukraine crisis can have great economic consequences in Europe and Serbia. “What is clear now is that Serbian trade connections with Ukraine and Russia will be, and already are, much more complicated or are cut. Securing alternative lines of energy supply is a priority at this moment,” the professor says, noting that, however, it is uncertain how manageable that is in the short-term.

Dejan Soskic believes that Europe will enter a recession, which will impact Serbia twofold – first, through the trade channel, since there will be less chance of selling Serbian goods on the EU market, and second, through the investment channel, since EU economies will reduce their investments in Serbia because of the recession.

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