Examining cheapflation in Serbia in the 2022-2024 period

This paper examines a phenomenon known as cheapflation on the example of Serbia in the 2022-2024 period. Cheapflation is the tendency of prices of cheaper brands to rise at a higher rate than those of more expensive brands of the same products during the periods of increased inflationary pressures. For research purposes, we used monthly microdata on the prices of various brands of a wide range of food and beverage products. Based on this data, brands within products were classified into quartile groups, from the cheapest to the most expensive ones. Synthetic consumer price indices were then created, consisting only of the cheapest and most expensive brands. The results show that Serbia experienced cheapflation, as the prices of the cheapest brands rose 4.5 pp faster than the the prices of the most expensive brands, on average, over the three-year period. The paper also confirmed an accompanying tendency: in the beginning, significant inflationary pressures are dominantly driven by the price increases of the cheapest brands, while the gap between the prices of cheaper and more expensive brands widens the most during the period of the strongest inflationary pressures. Examining this phenomenon is important because of the redistributive effects of inflation, as well as because of the impact that public perception of price increases can have on monetary policy through the expectations channel.