Sobering-up will follow during this year, through a more restrictive monetary policy that will also be transferred to Serbia. That means reduced liquidity, a slower economy, fewer new jobs and rising interest rates. Rising inflation is no longer the main risk – we are awaited by more unpleasantness through the extinguishing of inflation that will follow
We’re accustomed to inflation. The only periods without inflation in the living memory of today’s Serbian citizens were three short periods when the dinar had a fixed exchange rate: the period of the fixed exchange rate of Ante Marković, the period of the fixed exchange rate of Dragoslav Avramović and the last few years, which were again marked by a de facto fixed exchange rate.
We were to blame for all the inflation experienced to date. Prior to 2001, the inflation and hyperinflation that we experienced were created by the state financing itself through the printing of money. In more recent times, inflation was generated by the NBS whenever it lacked the ear to maintain the exchange rate, as this country’s only successful anchor of monetary policy.
However, this current inflation is something we didn’t create ourselves. The dinar is stable against the euro, but that’s no help given that prices are now also rising in the eurozone. The European Central Bank, as well as other key central banks around the world, reacted to the pandemic by turning on the taps and allowing the money to flow. They increased liquidity in order to prevent the economic crisis triggered by the pandemic from deepening.
They succeeded in preventing an even greater crisis, but it seems that they overexaggerated. Monetary policy works with a delay of unknown duration. You print money today, and inflation comes later – but you don’t know precisely when it will come and to what extent. The inflation that we now see in the eurozone – and in zones of dollars, pounds, roubles, Turkish lira and other currencies – is a consequence of the excessive monetary expansion of the previous two years. Serbia, which previously imported price stability through a fixed exchange rate, has now imported inflation through just such an exchange rate against the euro.
Prior to 2001, the inflation and hyperinflation that we experienced were created by the state financing itself through the printing of money. In more recent times, inflation was generated by the NBS whenever it lacked an ear to maintain the exchange rate, as this country’s only successful anchor of monetary policy
The European Central Bank will not allow things to spin out of control. It currently has inflation of close to 5% and its task is to return to the targeted level of 2% annually. If the NBS continues to peg the dinar to the euro, it will continue to import the policy of the European Central Bank. That’s why further inflation flare-ups are unlikely.
However, the problem hasn’t dissipated. On average, companies and countries fared a little better than they’d expected last year. They had higher revenues. That is the early effect of inflation. Like an alcoholic beverage, it initially makes things better.
This year, the sobering-up will follow through a more restrictive monetary policy, which will be transferred to Serbia as well. That means less liquidity, a slower economy, fewer new jobs and rising interest rates. The main risk is no longer rising inflation – more trouble awaits us through the quenching of inflation that follows.
Sobering-up will follow during this year, through a more restrictive monetary policy that will also be transferred to Serbia. That means reduced liquidity, a slower economy, fewer new jobs and rising interest rates. Rising inflation is no longer the main risk – we are awaited by more unpleasantness through the extinguishing of inflation that will follow.
