Unease over living costs in Serbia ahead of polls

BELGRADE (Reuters) – A Serbian grandmother making the traditional «Gibanica» pie in 2007 spent 310 dinars for the pastry, eggs, crumbly white cheese and pinch of salt needed to make the tangy treat. This year an equivalent eight-person serving costs 490 dinars ($6.08), a reflection of price hikes that have Serbian consumers up in arms, the central bank worried and political parties blaming each other ahead of a watershed May election. «I pay 25 percent more for food compared to a year ago and prices will affect the way I vote,» said 26-year-old Predrag Sobota. «I will vote for those with the most realistic, achievable economic program.» Price hikes are a key issue for Serbs, who went from the strictly controlled market of socialist Yugoslavia to the worst period of hyperinflation in recent history under the rule of strongman Slobodan Milosevic in the war-torn 1990s. Growth has gone hand in hand with price liberalization across many sectors since he was overthrown in 2000. Key sectors, such as utilities, are still state-run, but Belgrade also keeps a firm hand on those that are mostly private, such as agriculture. The statistics office calculates that the price of the theoretical household shopping basket rose by 15 percent over the last year, with dairy products up by 50 percent. April inflation hit 12 percent year on year, almost double the government target, and the Serbian central bank has raised its key repo rates to 14.5 percent to rein in demand. Analyst Ivan Nikolic of the Economics Institute think tank said higher prices were driven by increased demand on the back of booming salaries, now averaging 30,000 dinars a month from around 24,000 dinars last year. «The drought last year damaged crops, causing shortages that contributed to higher prices,» Nikolic said. «Serbia’s market is not liberalized enough and it is vulnerable to cartels and monopolies that can put up prices.» Both front-runners in the tight election race, the nationalist Radical Party and a coalition led by the pro-Western Democratic Party, are tapping into public discontent with the rising prices in their campaigns, but from different angles. The Democrats used their last weeks in the outgoing cabinet to raise public sector wages, saying it was to counter inflation. Their ads show grainy footage of poverty in the 1990s, zooming in on a 500-billion-dinar hyperinflation note. The Radicals in turn say uneven growth and corruption have made most Serbs «transition losers» who find it hard to buy even basic foodstuffs, while Western goods are out of their reach. Lazar Radojicic, a 73-year old Belgrade taxi driver buying a snack in a downtown bakery, said his pastry and yogurt cost 80 dinars, double last year. «If I lived elsewhere, I’d have retired by now, but here I must work and spend all I earn to feed the family,» he said. «I consider myself lucky, many people don’t have enough for food.» Miroslav Prokopijevic of the Free Market Center think tank said the emotional effect of rising prices would be a big factor in how people vote. «Serbs still remember the hyperinflation that was followed by protests and wars at the time of nationalism,» he said. Those memories spell bad news for the Radicals, who are otherwise boosted by anger at the loss of Kosovo, a former province that seceded with Western backing. But they could win votes from others, disillusioned with eight years of transition and swayed by populist promises. «The big problem is that most political parties favor government control of basic food prices,» Prokopijevic said. «They don’t really support a liberal market.»