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Wednesday, Mar 19, 2025

Persistent Price Pressures: The Impact of Cheapflation in Serbia

Persistent Price Pressures: The Impact of Cheapflation in Serbia

Despite official reports indicating a decline in inflation, many Serbian consumers are experiencing significant price increases in essential goods.
In Serbia, inflation appears to be stabilizing, with official statistics indicating a return to normalcy.

As of January 2024, the inflation rate was reported at 4.6%, suggesting a slow increase in consumer prices.

However, for average consumers, particularly those on lower incomes, this apparent reduction in inflation does not align with their experiences in the marketplace, where basic food products remain unaffordable, and cheaper alternatives are often priced similarly to their more expensive counterparts.

This discrepancy can largely be attributed to a phenomenon known as 'cheapflation,' where the prices of lower-cost products increase faster than those of their premium counterparts.

This trend is not unique to Serbia; it reflects a broader global issue where demand for budget-friendly options drives prices upward, leading many consumers to feel that inflation is more pronounced than statistics suggest.

According to data from the National Bank of Serbia (NBS), the share of products and services with double-digit price increases has significantly decreased in 2024. Approximately 25% of products and services remained stable in price, while 100 items in the consumer basket saw reductions in cost over the year.

Nonetheless, within the category of food and beverages, cheaper brands exhibited a cumulative price increase of five percentage points higher than that of more expensive brands from 2022 to 2024.

This trend is particularly evident among staple foods.

Analysis of prices for dairy products, meat, confectionery, coffee, and non-alcoholic beverages during this period revealed that the prices of budget brands rose by about 40%, compared to a 35% increase for premium brands.

The most significant price increases for cheaper brands were observed in dairy products, followed closely by meat products, particularly at the end of 2023.

Jorgovanka Tabaković, the governor of the NBS, noted that the low elasticity of demand for food, especially for budget brands, exacerbates the issue.

As consumers shift from more expensive items to budget alternatives, the increased demand for these products further elevates their prices.

Additionally, market imperfections allow producers and retailers to pass increased costs onto consumers more readily in this segment.

Economist Goran Radosavljević explained that while food constitutes about 27% of the overall inflation calculation, in the consumer baskets of many households, it accounts for approximately 60%.

Consequently, those with median incomes perceive their own inflation rates as significantly higher than official figures suggest, due to the sharp increases in essential food prices.

The impact of international inflation trends was highlighted by the Institute for Fiscal Studies (IFS), which reported that inflation surged globally between 2021 and 2024, reaching its highest levels in three decades.

Households with lower incomes are particularly affected by the steep rises in food and fuel prices, diminishing their purchasing power.

To adapt, food and beverage producers have adjusted their strategies, raising prices for previously affordable products to levels comparable to premium brands.

This shift often includes substituting cheaper ingredients for more costly ones, which can lead to a decrease in product quality, a trend referred to as 'skimpflation.'

Radosavljević indicated potential inefficiencies within retail pricing mechanisms and supply chains, questioning the lack of increased supply in response to heightened demand.

Such dynamics typically lead to higher prices; however, the absence of competitive market responses raises concerns regarding underlying market structures.

Milan Beslać, also an economist, noted that while luxury items may not experience high price growth due to their initial cost, essential daily purchases, such as bakery items and dairy products, reflect the steepest price increases.

He emphasized that inflation measurements must consider the frequency of purchases and specific product categories to accurately represent consumer experiences.

The observed price dynamics highlight a growing need for detailed examination of inflation trends, as consumer experiences diverge substantially from official statistics, particularly in essential goods.
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