Serbia’s annual consumer-price inflation fell to 1.9% in July 2026, down from 2.7% in June and well below the 3% midpoint of the National Bank of Serbia’s target range. The decline, however, has not been matched across the wider price basket, with core inflation remaining substantially higher and the central bank forecasting a return to slightly above 4% from September. The divergence is a key feature of the NBS August Inflation Report, which indicates that exceptionally favourable food-price developments are currently suppressing the headline rate while services and other domestically driven prices continue to rise more rapidly.
Food prices fell 6.1% year on year in July, largely reflecting lower fruit and vegetable prices following an exceptionally favourable agricultural season. The decline was sufficient to offset increases elsewhere in the consumer basket. The NBS also found limited evidence of the sharp retail-price rebound that had been anticipated after government restrictions on retail margins expired. In July 2026, around 75% of products previously covered by the margin regulation remained below their August 2025 price levels.
Services remain the main source of underlying price pressure
The underlying inflation picture remained considerably firmer. Core inflation excluding food, energy, alcohol and cigarettes reached 4.6% in June, with services accounting for roughly four-fifths of the increase. Service prices were 6.6% higher year on year, compared with growth of about 2.3% for goods included in the core measure. The difference leaves services as a significantly stronger source of domestic inflationary pressure than core goods.
Against that backdrop, the NBS has kept its key policy rate at 5.75%. The July headline figure has therefore not prompted an immediate shift towards monetary easing, with the central bank’s projections indicating that the current inflation rate is unlikely to represent the medium-term level of price growth. The expected increase from September will partly reflect statistical base effects. Retail margins had been capped from September 2025, lowering prices during the period that will form the comparison base for 2026. Energy and other global commodity costs are also expected to contribute to renewed pressure.
Credit and wages point to continued domestic demand
The NBS expects headline inflation to remain slightly above 4% through much of 2027, despite a gradual easing in international cost pressures. The projected rise from 1.9% to above 4% in a relatively short period is therefore not necessarily expected to represent a conventional renewed inflation shock. Base effects and the reversal of unusually favourable food-price movements are significant factors, although the resulting inflation rate would still leave Serbia operating near the upper portion of the central bank’s target range.
Domestic demand remains supported by strong credit growth. Total domestic lending to the non-monetary sector increased 16.6% year on year in June, while lending to households rose 20.0% and corporate credit expanded 11.7%. Real wages were growing by approximately 7% in April and May, adding to the domestic component of inflationary pressure.
At the same time, productivity increased 4.2% year on year in the second quarter. The NBS expects real wage growth to moderate and increasingly converge with productivity growth during 2027, limiting the extent to which wage increases translate directly into higher unit labour costs.
Inflation expectations remain close to target
Inflation expectations provide a more stable backdrop for monetary policy. Financial-sector expectations for inflation two and three years ahead stood at 3.0% in July, close to the centre of the NBS target range. Household short-term inflation expectations also declined to 10% in June and July, their lowest level since June 2024. Qualitative surveys showed that households anticipated lower inflation over the following year than the inflation they perceived during the preceding 12 months.
These expectations allow the central bank to distinguish between temporary changes in headline inflation and more persistent price pressures. The NBS is particularly focused on limiting second-round effects arising from energy costs and wages rather than responding mechanically to individual monthly consumer-price readings.
External energy risks remain important for the outlook
The international environment remains a significant factor in the NBS projection. Its baseline scenario assumes that the Middle East energy shock gradually subsides rather than developing into a renewed global supply crisis. Under that assumption, imported cost pressures should diminish and inflation should gradually normalise towards the end of the projection horizon. A renewed escalation would produce a substantially less favourable result. In the NBS’s pessimistic scenario, a renewed escalation would add 1.2 percentage points to average Serbian inflation in 2027 while reducing GDP growth by 0.8 percentage points.
The central bank has nevertheless lowered its forecast for average 2026 inflation to 3.2%, from 3.6% in May, reflecting stronger-than-expected disinflation during the year. The July rate of 1.9% therefore represents a genuine decline in consumer-price inflation, particularly as households benefit from substantially lower food prices. However, the NBS’s projection indicates that Serbia is not yet moving into a sustained 2% inflation environment, with services, wages, energy costs and statistical base effects expected to shape the inflation path from September and through 2027.
