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Nikola Pejović, Umka Cardboard Mill General Manager

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Dejan Šoškić, Economist, Full Professor Of The University Of Belgrade Faculty Of Economics

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A belated reaction, or the absence of a monetary policy reaction, can only lead to heightened inflation remaining in the financial system for longer, and it seems that this will be the case

Inflation around the world is mainly generated on the supply side (rising food prices, rising energy prices, rising transport costs and rising prices following reduced supplies of some products due to broken supply chains). However, there are also elements on the demand side, and those are ever-increasing, which create inflationary expectations that need to be addressed through a more restrictive monetary policy. Serbia has just caused inflation demand with the direct distribution of money to citizens ahead of elections. A belated reaction, or the absence of a monetary policy reaction, can only lead to heightened inflation remaining in the financial system for longer, and it seems that this will be the case.

Some components of the current inflation are reminiscent of the inflation from the 1970s, when we were twice subjected to price shocks in oil prices and overall high financial system liquidity. However, we now also have other factors, such as a poor year for agriculture, which – according to the assessment of experts – is a consequence of climate change, and supply chain disruptions resulting from problems hindering global transport and even production, caused by the pandemic.

I believe we’ll struggle to avoid inflation rising over a somewhat longer period, and that will have a negative impact on people’s living standards in the future, and already is

Serbia has been placed in a sensitive position due to the large direct payments from the budget and the erroneous and unnecessary purchasing of the bonds of some companies by the NBS [National Bank of Serbia] a little over a year ago, which represented an unnecessary and mistaken expansionary monetary policy. We simultaneously allowed the dinar to strengthen a few years ago when that wasn’t necessary, and thus “expended” the opportunity to now strengthen the dinar over the short term, in order to reduce the negative impact of global inflation on domestic inflation. At the same time, the NBS still isn’t reacting, which is why I believe we’ll struggle to avoid inflation rising over a somewhat longer period, and that will have a negative impact on people’s living standards in the future, and already is.

Under the conditions of relatively high inflation in euros, and even higher in dinars, coupled with interest rates that are still low, maintaining the real value of money isn’t easy. Apart from investing in real estate and ownership shares in enterprises that operate well, smaller amounts should be utilised to at least attempt to reduce losses through interestbearing placements in banks and investment funds, as well as through the purchasing of government bonds.

Comment by Zoran Panović

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