Serbia’s consumer inflation slowed to 1.9% in July, but price pressures across the production and construction sectors remained significantly higher, creating a wider gap between household inflation and the costs faced by businesses and investors. Industrial producer prices for goods sold on the domestic market were 7.0% higher year on year in June, while prices of construction materials and components increased 10.8%. Import-price inflation also accelerated to 3.8%.
The divergence comes as Serbia enters a major infrastructure and investment cycle, leaving project developers and contractors exposed to upstream cost increases despite the low headline consumer inflation rate.
Energy and intermediate goods drive producer-price growth
Energy was the main contributor to the 7.0% annual increase in industrial producer prices, adding 4.7 percentage points to the overall rise. The increase reflected base effects as well as higher global oil prices. Intermediate goods, including basic metals, chemicals and metal products, contributed a further 1.5 percentage points. Consumer prices have not fully reflected these increases. Falling food prices, restrained retail margins in several categories and relative stability of the dinar have helped push headline inflation lower even as producer prices remain elevated.
The difference is particularly pronounced in construction. Prices of construction materials and elements increased 4.0% in the second quarter alone, while their annual increase reached 10.8% in June, up from 7.6% in March.
Construction activity accelerates alongside input costs
The rise in construction costs is occurring while activity in the sector is expanding. The NBS estimates that construction grew 9.0% year on year in the second quarter, with completed construction works increasing 9.7%. Building permits rose 4.5%, while production of construction materials increased 2.5%. Imports of construction materials were also higher, rising 3.5%.
The cost environment is significant for Serbia’s multibillion-euro infrastructure programme. Roads, railways, municipal infrastructure, the Belgrade metro and Expo-related construction are competing for materials, labour, equipment and contractors. Higher input prices can therefore increase the nominal cost of public investment even when consumer inflation remains subdued. A fixed infrastructure budget can finance fewer kilometres of roads or railways and less urban infrastructure when construction inputs rise by around 10% annually. Alternatively, project allocations may need to increase, implementation may be phased more slowly, or contractor margins may come under pressure.
The NBS report does not provide revised project-cost estimates, so it does not establish the potential impact on the €19.561 billion Expo-era programme. The available price indicators nevertheless show a less favourable construction-cost environment than the July CPI figure alone would suggest.
Imported costs add pressure to investment projects
Import-price inflation increased from 1.3% in March to 3.8% in June. Equipment, intermediate goods, other imported goods and imported services together contributed around 3.0 percentage points to the annual increase, while oil contributed another 0.6 percentage points. The development is relevant to Serbia’s investment programme because major projects rely heavily on imported capital goods and materials. Metro systems, railway equipment, industrial machinery and large infrastructure developments require substantial volumes of imported equipment and inputs.
The gap between consumer and upstream inflation also has implications for corporate margins. Companies are facing higher energy and intermediate-input costs while operating in an environment of low headline inflation and strong retail competition, limiting their ability to immediately pass those increases through to consumers.
This can put pressure on profitability in sectors with limited pricing power. Construction and specialised infrastructure companies may have greater scope to incorporate higher costs into contract prices.
Regulated prices and services remain elevated
Regulated prices were 7.3% higher year on year in June, although their annual growth slowed from 7.8% in March. Services also continued to register comparatively strong inflation, rising 6.6% year on year in June. The figures indicate that the low headline CPI rate is being supported substantially by falling food prices rather than by uniformly low price growth across the economy.
The NBS expects headline inflation to rise above 4% from September, as the comparison base becomes less favourable and energy and other primary-product costs pass through the economy. The upstream price indicators provide part of the basis for that expected increase without pointing to a new domestic demand shock. At the same time, the report contains no indication of an uncontrollable price pipeline. Import inflation at 3.8% remains moderate compared with earlier energy crises, inflation expectations are anchored, and the central bank expects international cost pressures to ease during 2027. For households, the key inflation figure in July was 1.9%. For companies preparing bids for multi-year construction contracts, the relevant cost environment was considerably higher, with construction materials and components rising 10.8% year on year.
