* Food prices in September rise by 5 pct
* Monetary measures to have little impact on inflation
* Dinar strengthening driven by subsidies, investors
By Aleksandar Vasovic
BELGRADE, Oct 12 A major increase of food prices
in September, following a poor harvest and long drought, has
driven Serbia's inflation to 2.3 percent and the annual figure
to double digits, the statistics office said on Friday.
The drought in Serbia almost halved corn yields and
seriously affected sunflower, sugar beet and soy beans,
prompting government to limit exports. This also led to a higher
demand for cattle fodder and a hike in meat and milk prices.
The prices of food and non-alcoholic beverages last month
rose by 5 percent on the month, followed by hikes in transport
with 2.4 percent and household equipment and maintenance items
with 2 percent, the statement said.
Rising inflation, now at 10.3 percent, and a mounting debt,
seen at some 60 percent of gross domestic product (GDP) by
end-2012, prompted the central bank this week to cut this year's
growth forecast to -1.5 percent from the previously seen -0.5
In a bid to tame concerns over inflation and debt, the bank
this week also raised its benchmark rate, already
the highest in the region, by 25 basis points to 10.75 percent.
The bank said the inflation would rise further to 12 percent
this year and continue to grow until the first half of 2013 when
it should start sliding back to its target band for this year
and next of 4.5 percent, give or take 1.5 percentage points.
"October inflation will surely go up due to an increase of
taxes and excise duties, but I don't see higher prices in
November when (inflation) will likely stagnate and remain like
that until the end of 2012," said Sasa Djokovic of the
Belgrade-based Institute for Market Research (IZIT).
He said the government's move to narrow the budget gap by
raising value-added tax would accelerate inflation in October.
He voiced doubt about how effective the rate hike would be.
"Monetary measures have little impact as inflationary
pressures are not coming from the monetary sphere but from
disbalances in Serbia's monopolised economy," Djokovic said.
STRONGER DINAR MAY LOWER INFLATION
The Serbian dinar has gained 1 percent this week
and was quoted at 111.9 on Friday, according to Reuters data.
Dealers said loans for exporters, which the government has
been subsidising since September, as well as stronger demand for
the currency by portfolio investors were boosting the dinar,
which could lower inflation to a degree.
"The dinar strengthening could lower import prices but it
is probably a short-term event as the currency is not backed by
exports," said a trader with a Belgrade-based commercial bank.
The dinar sank to a record low of above 119 per euro in
August, after a new law on the central bank eroded the
institution's independence, rattled markets and drew criticism
from the European Union and the International Monetary Fund.
TO assure investors, Serbia needs to secure a new loan deal
with the IMF, which in February froze its 1 billion euro ($1.29
billion) deal with the country over inflated spending.
Last month, the lender told Belgrade to restore the autonomy
of the central bank and rein in spending before any new loan
talks. Serbia instead sought to borrow from sovereign lenders
including Russia and China And last month issued a $1
($1 = 0.7726 euros)
(Reporting by Aleksandar Vasovic; Editing by Zoran