The Central Bank of Bosnia and Herzegovina (CBBiH) has significantly corrected upward rapid inflation estimates for the first half of 2022, compared to expectations from December.
”Based on incomplete official data for January 2022, and all available information by mid-March, including the values of futures for oil, gas, and food on international markets for deliveries by the end of the half-year, as well as specific price shocks related to the country, we estimate inflation for the period of the first half of the year at the level of 9.2 percent,” the CBBiH stated.
Based on official data from October and available information from the market by the end of November, inflation for the first half of 2022 is estimated at 4.5 percent in December 2021.
The expected rise in prices in the first half of the year is due to the extreme rise in prices of raw materials, energy, food, and oil, particularly pronounced after the outbreak of the war in Ukraine, but also low base foundations from the first half of 2021, when consumer prices stagnated. We expect inflation to slow down in the second half of the year, primarily due to the base effect from 2021 and the assumption of the absence of further intensive growth in food and energy prices.
There are several factors that could in the short and medium-term result in additional supply-side inflationary pressures and rising inflation towards our current extreme estimates.
”It is important to note that domestic producer prices have been growing much faster than consumer prices for more than a year. Another possible source of inflationary pressures in the short and medium-term is the possible further harmonization of electricity prices on the domestic market with international trends. Lastly, there are also pressures through the wage and inflation spiral, not only because of union pressures to reconcile wages with rising living costs but also because of the outflow of skilled labor abroad,” the CBBiH pointed out.
In the November round of macroeconomic projections, according to available data at the time, moderate growth in real economic activity was expected in 2022 and 2023 (3.9 percent and 2.1 percent) due to the disappearance of the base effect and increasing inflationary pressure.
However, information on events and trends from the end of 2021 until mid-March 2022 indicates that real GDP projections for 2022 and 2023 could be significantly revised in the May round of macroeconomic projections.
Primarily, deflators will strengthen significantly due to inflationary shock, which will, all other things being unchanged, result in a lower than currently projected real GDP growth rate in 2022 and 2023. The most significant unknown value at the time of making the autumn round of medium-term projections was the war in Ukraine and the sanctions imposed on Russia.
”The full effect is still difficult to assess, as the war has been going on for less than a month, but there is a certain slowdown in economic activity in our main trading partners, at least due to rising energy and food prices in international markets, which will negatively affect external demand for our goods. This is an additional factor that we expect to slow economic activity compared to the projected one from November 2021. Another factor, which was unknown in the autumn round of projections, and which will result in pressures on expected economic activity in 2022, is the continuation of activities in the mechanism of temporary financing for a part of fiscal sector,” stands in the announcement of the CBBiH.
E.Dz.
