RS: Inflation again outside the target band
Inflation at the start of 2025 landed at 4.6% y/y, thus surprising to the upside both our and Bloomberg consensus expectations, at 4.2% y/y and 4.3% y/y respectively. Comparing to the previous month, prices were on average higher 0.6%. Category-wise, on a monthly basis rise of prices was broad-based, with basically just the usual seasonal discounts of clothes and footwear acting deflationary as they dropped 0.6% m/m.
Januarys inflation figure confirms still relatively high inflation pressure in Serbia. The upside surprise owes to jump in crude oil prices exhibited in January and a stronger dollar which boosted petroleum product prices, but also steady monthly increase of food prices. While normalization of price developments is a bit slower in Serbia, compared to other regional and peer countries, we still expect inflation will again fall below 4% y/y in 2H25 but remain in the upper part of the target band throughout the year. As for monetary policy moves, NBS remains vigilant, keeping the key rate unchanged in January. We have moved the first cut to May, while seeing a total of three 25bp cuts this year. Risks are tilted towards less cuts rather than more,