of this year, inflation is expected to slow down and move closer to the lower bound of the target tolerance band. in an environment of low inflationary pressures, this will also be supported by the drop - out of last year ’ s one - off price hikes of certain products and services from the year - on - year calculation. in the medium - term, according to our new central projection, year - on - year inflation will continue to move within the target tolerance band of 3. 0±1. 5 % until the end of the projection horizon, that is in the following two years, which will also be supported by the gradual recovery of domestic demand. * * * taking into account primarily the expected movement of inflation and its key factors in the period ahead, as well as the effects of past monetary policy easing in the period since the last inflation report, we kept the key policy rate at 3. 5 %. in the coming period as well, monetary policy decisions will depend on our estimate of the impact of domestic factors and factors from the international environment on inflation movements in serbia. in our judgement, the major risks come from the international environment, and thus we will continue to closely monitor and analyse movements in the international financial market and the market of primary commodities, and to assess their impact on economic movements in serbia. chart 14 inflation projection ( y - o - y rates, in % ) - 1 - 2 source : nbs. of course, same as before, the national bank of serbia will use all available instruments in order to keep inflation in serbia low and stable in the medium term. i believe that this, together with preserving financial stability, is the best way for a central bank to contribute to sustainable economic growth and to strengthen resilience to challenges from the environment. i will finish my introductory address with these words and give the floor to my colleagues from the directorate for economic research and statistics, who will briefly present the latest projections and text boxes from the report. what you will also hear from them is that our projections of inflation movements indicate that in the coming period we will continue to fulfil our primary legal mandate of keeping inflation within the target, while well - calibrated measures of economic policy set the groundwork for sustainable acceleration of gdp growth, which we estimate at around 3. 5 % in 2018 and 2019, and at around 4 % in the medium term.

##irable outcome. if it results in a significant reduction in the inflation rate, it will represent a soft landing, which in turn opens up the opportunity for a reversal in the interest rate cycle. however, many unknowns stand in the way and ultimately, inflation outcomes will determine the monetary stance. iv. domestic inflation dynamics over the past year, the nature of inflation has changed in significant ways. chart 4 provides a broad picture of the dynamics. headline inflation began to accelerate in the second half of 2009 – 10, at a time when growth was still relatively sluggish. it stayed high through 2010 – 11, actually accelerating in the last quarter of the year. in the first two months of 2011 – 12, that pattern has persisted. however, the relative importance of the drivers of inflation clearly changed over the period displayed. food inflation was the predominant contributor in the early phase, but a resurgence of energy prices in the post - crisis environment began to play an increasingly important role. the prices of non - food manufactured products, which the rbi views as a reflection of demand pressures, began to rise noticeably in early 2010, but saw their rate of increase stabilize and even moderate somewhat in the third quarter of 2010 – 11. however, that pattern was short - lived and the rate of inflation for this category surged in the fourth quarter, a momentum that has clearly persisted into the current year. the changing contributions of different drivers are very sharply brought out in the decomposition exercise displayed in chart 5. the analysis looked at recent patterns in terms of three periods of roughly equal lengths over the past 14 months, beginning april 2010. in the first period, food and energy, reflecting classic supply - side forces, were the primary contributors to inflation. non - food manufacturing inflation, which, to the extent that it represents demand pressures, was not insignificant, suggesting that pricing power was present. in the second period, the weight of the contribution shifted dramatically towards commodities other than energy. the contribution from food moderated a bit, as did that from non - food manufacturing, suggesting that the pass - through or “ generalization ” risk was moderating. however, this pattern was short - lived. in the last period, energy returned as a major contributor and the sharp increase in the contribution of non - food manufacturing indicated that producers were able to pass on higher input costs without too much difficulty. the strength of the pass - through in this period indicated that demand conditions remained bis central bankers ’ speeches quite robust, even as some early