Tackling inflation represents the best way to preserve citizens’ living standards, while possible attempts to prevent standards from falling by additionally increasing salaries and pensions would only contribute to accelerating inflation
Representatives of leading central banks, including the NBS, predict that inflation will begin falling during the first half of this year, returning to pre-crisis levels over the next two years. I estimate that inflation will persist a little longer, but I don’t expect it to continue over the next few years. Disruptions to production processes and transport operations, which have reduced the supply of products, will likely be resolved over the course of this year. Governments worldwide are also reducing their fiscal stimulus measures, while some central banks have increased the restrictiveness of monetary policy, which others will also do if inflation persists.
This current inflation, like all others, is a result of an imbalance between supply and demand, but the causes of today’s imbalance are in part specific. The problems on the supply side have been caused by epidemiological constraints, which are unique in human history in terms of their scope and severity.
There aren’t many opportunities to invest money in Serbia, because the financial market is underdeveloped and interest rates on savings are realistically negative, similar to the situation in other countries. As such, the best option for citizens is to support policies that will ensure a drop in inflation
On the other hand, growth in demand has been encouraged by an expansionary fiscal and monetary policy, though its expansiveness was significantly higher than in previous crises, including the global financial crisis of 2008-2009.
Serbia’s high inflation is partly a consequence of implementing extremely expansionary fiscal and monetary policies over the past two years. Serbia can influence a reduction of inflation by reducing its fiscal deficit and gradually increasing the restrictiveness of its monetary policy. High inflation has a negative influence on economic activity and citizens’ living standards because it reduces the real value of income, which can lead to stagflation if it persists for a longer period. Inflation also has a negative influence on citizens’ living standards because it reduces the real value of fixed incomes, such as salaries and pensions.