Serbia recorded one of the lower inflation rates in Europe in August, but rising prices for services, housing and utilities continue to put pressure on households. The national consumer-price index increased by 2.2% year on year, while inflation measured under the harmonised European methodology stood at 2.5%, below the 3.2% recorded in both the European Union and the euro area.
Only seven EU member states registered a lower inflation rate than Serbia on the harmonised measure, despite continued rapid wage growth.
Core Inflation Driven by Domestic Services
The headline figure masks a different trend in underlying prices. MAT reported that core inflation reached 4.7% in August, with the core component accounting for the overwhelming majority of year-on-year inflation, while food prices declined.
Services were among the main sources of price pressure. Health costs increased by 7.8%, while water supply, refuse collection and sewerage charges rose by 17.4%. Package holidays recorded a 22.2% increase, actual rents were up 12.6%, and restaurant and cafe prices advanced by 6.8%. These increases indicate that price pressures remain concentrated in areas closely linked to domestic costs and demand, even as the overall inflation rate has moderated.
Energy and Food Prices Move in Opposite Directions
Energy costs also contributed to higher consumer prices. Electricity prices were 9.6% higher than a year earlier, while diesel increased by 18.2% and petrol by 13.2%.
Food prices followed the opposite trajectory, declining and helping to reduce the headline inflation rate. The contrasting movements mean that the impact of inflation varies considerably between households, depending on their spending patterns. Consumers facing lower prices for fruit and vegetables may still encounter higher costs for rent, utilities, fuel and services, leaving their personal cost-of-living experience above what the headline rate suggests.
Services Inflation Presents a Monetary Policy Challenge
The composition of inflation is relevant for monetary policy because different price categories tend to respond differently to economic conditions. Food prices are volatile and can change direction relatively quickly, whereas core services inflation is generally more persistent. Prices for services reflect factors including wages, rents, regulated charges and domestic demand. Serbia’s strong retail activity and rapid wage increases therefore make developments in this part of the consumer basket particularly important for inflation trends.
A central bank can more readily accommodate temporary fluctuations in food and energy prices than a broad-based increase in domestic service costs that becomes incorporated into wage-setting behaviour. The easing of the previous inflation shock has improved Serbia’s position relative to much of Europe. However, further disinflation will depend increasingly on developments in rents, wages, utility charges and service prices, rather than on declines in food costs.
