Serbia’s annual inflation eased to 2.2% in August, but elevated services inflation and 4.7% core inflation are keeping the National Bank of Serbia (NBS) cautious about the durability of the decline. The central bank left its benchmark interest rate at 5.75%, despite headline inflation moving below the midpoint of its target range. Food prices were the main contributor to the slowdown, while energy costs continued to exert upward pressure.
Food prices drive headline disinflation
Food prices declined 6.3% year on year in August, with fruit and vegetable prices falling 18.6% following a strong agricultural season. The decline in food prices more than offset higher energy-related costs. Petroleum product prices were 15.7% higher than a year earlier. The divergence between headline and core inflation remains significant for monetary policy. Although overall inflation has fallen substantially, underlying price pressures remain concentrated in services. Core inflation stood at 4.7%, close to the upper section of the NBS tolerance band.
NBS sees inflation rising again
The NBS reduced its forecast for average inflation in 2026 to 3.2%. At the same time, it expects annual inflation to return to around or slightly above 4% from September, reflecting base effects as well as higher global energy and commodity prices. Inflation is expected to remain around those levels through much of 2027. The central bank has also continued to highlight geopolitical risks, including potential disruptions to energy supplies and global supply chains, as factors supporting a cautious monetary policy stance.
Inflation expectations remain contained
Inflation expectations have remained comparatively stable. Financial-sector expectations stood at 3.5% one year ahead in an August survey and 3.8% in a September Bloomberg survey. Medium-term expectations remained around the NBS central target of 3%. For businesses, the inflation environment presents differing pressures. Lower food prices can support household purchasing power, while persistent services inflation and higher energy costs continue to affect operating expenses.
For companies relying on bank financing, the combination of persistent underlying inflation and renewed energy-price risks also affects the outlook for monetary easing. The latest inflation figures show a substantial decline in headline price growth, but services inflation, core inflation and energy costs remain important components of the NBS assessment of price stability.
