7. 0 % in december. the key contribution to the decline in inflation in that quarter came from food prices again. growth in fruit and vegetable prices fell short of what would be a typical hike for that time of the year, while processed food prices declined through cheapening of their inputs, such as wheat and corn. market - determined prices of non - food products and services also grew more moderately than in the third quarter. this component of the consumer price index, which is most persistent and most responsive to monetary policy measures, has moved within the target tolerance band practically ever since the inflation targeting regime in serbia was introduced. as far as administered prices are concerned, the only significant hikes in the fourth quarter were recorded for natural gas and heating, but their contribution to headline inflation was modest. nevertheless, due to the high growth in the first half of the year, administered prices exceeded the growth framework planned for 2011. year - on - year inflation is expected to continue down, i. e. to return within the target tolerance band already in this quarter, which confirms our projections from last year ’ s inflation reports. medium - term, it is expected to remain within the target tolerance band, with occasional oscillations. the government ’ s decree imposing a 10 % restriction on trade margins on some food products led to their cheapening in january, but as the decree expires in july, these prices could bounce back. however, provided that primary agricultural commodities see no considerable hikes in the coming period, the prices of processed food will probably rise at a somewhat slower rate than those of non - food products. bis central bankers ’ speeches on the other hand, fruit and vegetable prices will probably outpace other prices in 2012. in view of their sharp fall in the season behind us, fruit and vegetable prices are estimated to be rather low currently, and are hence likely to rise even in the event of an average agricultural performance. we expect the contribution of fruit and vegetable prices to inflation growth to be most pronounced in the second quarter, with the onset of a new agricultural season. looking forward, growth in administered prices is likely to be slower than in earlier years as they have come closer to an economically sustainable level. their growth in 2012 will probably be modest until the formation of new republic and local authorities, but could catch up thereafter, in the second half of the year. a rise in import prices, prompted by the weakening of the dinar, may put pressure on domestic prices. we estimate

, however, that real marginal costs of net importers are still relatively low, and that importers will be able to offset a major part of the growth in import costs by cutting their margins. given the high unemployment rate and deteriorated outlook for economic growth at home and abroad, the disinflationary pressures stemming from low aggregate demand will persist over the coming period as well. a disinflationary effect will also be generated by inflation expectations. in the fourth quarter, they dropped to 6. 0 % from 8. 0 %. in light of a further decline in inflationary pressures, the downward tendency in inflation expectations is likely to continue this year. chart 15 one - year ahead expected and targeted inflation ( in % ) chart 16 world prices of primary commodities ( 2010 = 100 ) 7. 0 6. 0 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 financial sector ( gallup and strategic agency ) financial sector ( thomson reuters agency ) financial sector ( bloomberg ) financial sector ( ipsos ) targeted inflation tolerance band 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 ural oil prices corn prices wheat prices copper prices a decline in year - on - year inflation will be pronounced in the first months of 2012 as high price hikes from early 2011 drop out of its calculation. as a result, inflation will return within the target tolerance band already in this quarter. year - on - year inflation will reach its minimum level in march or april, when it should move around the lower bound of the target tolerance band. however, with the onset of a new agricultural season, higher growth in administered prices after elections, and the repeal of the decree limiting trade margins, inflation will return towards the target by the third quarter 2012. on account of these factors, in the first half of 2013 year - on - year inflation may temporarily stand at around the upper bound of the target tolerance band, only to return towards the 4±1. 5 % target thereafter. the key risks to the presented projection relate mostly to the international environment and fiscal policy at home. outlook for serbia ’ s economic growth and pressures on inflation will largely depend on developments in the euro area given that its members, together with countries in our region, are our major foreign trade partners. the speed and way of resolving the public debt crisis in some member states, as well economic activity