NBS: Firms Plan Price Hikes Despite Falling Inflation
A National Bank of Serbia survey shows 53 percent of business owners plan to raise prices over the next 12 months, even as annual inflation fell to 1.9 percent in July.
A survey on inflation expectations carried out in July by the National Bank of Serbia (NBS) found that 53 percent of business owners plan to raise the prices of their products over the next 12 months. A month earlier, in June, that share stood at 47 percent. The jump in price hike expectations came even as inflation itself was falling: annual inflation in July stood at 1.9 percent, and consumer prices dropped by an average of 0.2 percent compared to June.
Why are companies planning price hikes even as inflation falls?
Part of the answer is that operating costs, according to the same survey, have not changed. The share of businesses expecting raw material and other costs to rise over the coming year held steady at 33 percent, exactly where it stood in June. When cost expectations stay flat while the share of firms announcing higher prices for finished goods keeps climbing, the driver is not necessarily input price pressure. It may just as easily be companies reaching for wider margins, room to raise wages, or a hedge against costs they cannot yet pin down.
The picture looks somewhat different over the shorter term. The share of business owners planning a price hike in the next three months fell from 36 to 28 percent, while the share expecting input costs to rise over the same period held steady at 23 percent. Businesses, in other words, are factoring July’s lower inflation into their planning for the next quarter, but not into how they see the year ahead.
Corporate inflation expectations still above the NBS target
Businesses’ expectations for inflation a year from now stand at 5 percent, unchanged for a fourth straight month and still above the central bank’s target of 3 percent. Core inflation, which strips out food, energy, alcohol and cigarettes, came in at 4.5 percent year on year in July, and it is that persistently high core reading that explains why businesses are not lowering their expectations despite softer headline numbers. Unprocessed food prices, by contrast, fell 12.9 percent thanks to a strong agricultural season, and that drop did the most to pull overall inflation down to 1.9 percent.
The picture among households is similar, though the timing differs. Medium-term expectations, looking two and three years ahead, stand at 10 percent and have held there for a third straight month. Short-term expectations, for the coming year, are also at 10 percent, but that reading has only matched June’s level, without the same longer run of unchanged months behind it.
The financial sector is the only group in the survey lowering its expectations. According to Ninamedia’s July survey, banks expect inflation of 3.5 percent a year from now, down from 3.6 percent in June. Bloomberg’s August survey points the same way: 3.9 percent against 4 percent the month before. The composite measure of inflation expectations, which combines estimates from businesses, households and the financial sector, fell from 4 percent in June to 3.7 percent in July.
Another chapter in the margins story
The figures build on an earlier NBS finding that 75 percent of prices remained above their level from before the margin cap regulation was introduced, which Serbian Novine has reported on before. If the new round of price hikes turns out not to be covered by rising costs, which the survey shows have stayed flat, the same question resurfaces: are businesses raising prices because they have to, or because they can?
