Serbia’s annual inflation rate declined to 1.9% in July, reaching its lowest level in several years as falling food prices drove disinflation, while services and energy costs continued to rise significantly.
Consumer prices decreased 0.2% month on month, with annual inflation falling from 2.7% in June and 3.5% in May. The decline was largely attributable to food and non-alcoholic beverages, whose prices were 6.1% lower year on year, while unprocessed food prices fell 12.9%. The headline inflation rate therefore masks substantial differences among major price categories.
Services and energy prices remain elevated
Energy prices increased 9.3% year on year in July, while services became 6.5% more expensive. Core inflation, measured excluding energy, food, alcohol and cigarettes, remained at 4.5%. Services also continued to record monthly price pressure. Their prices rose 1.1% from June, even as the sharp decline in food prices pulled the overall consumer price index lower.
The contrasting movements are significant for the National Bank of Serbia (NBS) as it assesses future monetary policy. The central bank has kept its reference interest rate at 5.75% since late 2024, maintaining a substantial real interest-rate margin as headline inflation has declined.
Inflation composition complicates monetary easing
An inflation rate below 2% alongside a policy rate of almost 6% could indicate considerable scope for monetary easing. However, the composition of July’s price movements points to a more cautious approach.
The largest contribution to disinflation came from volatile food categories, rather than from a broad-based reduction in domestically generated price pressures. At the same time, services inflation above 6% indicates continued pressure from wages and domestic demand, while higher energy costs are pushing inflation in the opposite direction from food. The distinction is particularly relevant as domestic economic activity strengthens. Serbia’s GDP growth accelerated in the second quarter, while real wages are increasing, household lending remains active and retail turnover continues to expand.
Domestic demand remains relevant to price pressures
The combination of stronger economic activity and persistent services inflation creates a different inflationary environment from the headline July figure alone. The latest data leave the NBS assessing whether 1.9% inflation reflects a sustained change in underlying price dynamics or primarily the effect of unusually favourable food-price movements.
Food and non-alcoholic beverage prices were down 6.1% year on year, compared with increases of 9.3% for energy and 6.5% for services, while underlying inflation excluding energy, food, alcohol and cigarettes stood at 4.5%. The July figures therefore show a sharp decline in headline inflation alongside continued price growth in services and energy, leaving the underlying inflation picture materially different from the overall 1.9% annual rate.
