Serbia’s disinflation is stabilizing headline inflation, but a sticky core keeps rates higher for longer

Serbia’s inflation story is moving into its most difficult phase: not the initial surge or the subsequent decline, but the final stretch where domestic structural forces replace external shocks as the main drivers of prices. Headline inflation has stabilized within the National Bank of Serbia’s target range, yet the composition of inflation is changing in ways that matter for policy, financing costs and long-term planning.

Headline inflation holds steady; core pressures persist

By year-end 2025, headline inflation was recorded at 2.7%, broadly aligned with the 3% ±1.5 percentage point target band through 2026. This represents a clear break from the double-digit inflation environment seen after the post-pandemic period. However, that stability masks a divergence: core inflation remains elevated at around 4%, reflecting services prices, wage growth and domestically anchored components.

The implication is a “sticky core” dynamic. Even as energy and food prices—typically among the most volatile items—have stabilized or declined, domestic cost structures are still adjusting. Wage growth continues to support upward pressure on prices, particularly in services and in industries linked to public-sector pay dynamics.

Energy is a latent risk; food has become more stable

Energy remains a risk factor even though global energy prices have moderated from crisis peaks. The article notes that energy prices are still structurally higher than pre-2020 norms, and Serbia’s economy remains exposed because it relies on imported energy inputs. Any renewed increase in oil or gas prices would be expected to feed quickly into transport, logistics and industrial costs.

Food inflation appears less problematic. Improved agricultural output and supply chain normalization have reduced volatility, which has contributed materially to the fall in headline inflation. The effect is especially important for Serbia because food carries a higher weight in its consumer price index than it does on average across EU countries.

Expectations are anchored by credibility and exchange-rate stability

Inflation expectations offer additional guidance on how durable disinflation may be. Surveys cited in the article indicate that financial sector expectations remain anchored around 3%, closely matching the central bank’s target. This anchoring is attributed to policy credibility and exchange rate stability sustained over roughly the past two years.

The exchange rate channel is described as particularly important. Relative stability of the dinar against the euro reduces imported inflation pressures—an effect that can be especially significant in emerging markets where currency depreciation often amplifies price cycles. In Serbia’s case, the managed exchange rate regime has acted as a stabilizing force.

The final stage will likely be slow—and rates may stay elevated

The article emphasizes that disinflation tends to slow once external shocks fade because domestic factors are structurally more persistent. Services inflation is singled out as an example: it typically lags and adjusts gradually based on wage dynamics and demand conditions rather than commodity price swings.

For investors, this creates a nuanced environment. Stable headline inflation within target reduces macro uncertainty and supports longer-term planning. At the same time, persistent core inflation suggests interest rates may remain elevated for longer, raising financing costs and potentially weighing on project returns.

Fiscal demand adds pressure even while supporting growth

Fiscal policy further complicates the picture. Government spending—particularly on infrastructure and EXPO-related projects—continues to inject demand into the economy. While this supports growth, it also sustains price pressures, especially in construction and services sectors where wages and input costs can transmit into consumer prices.

Outlook: within target band, with risk of edging toward the upper bound

Looking ahead, inflation is expected to remain within the target band but may drift toward its upper bound by late 2026 due to base effects and demand recovery. The article therefore suggests Serbia is unlikely to see rapid disinflation below target levels; instead, it should expect a controlled moderate inflation regime.

Taken together, these developments point to a structural shift from crisis-driven inflation toward an “equilibrium” phase where policy becomes less about containment and more about fine-tuning balances between continued growth and preventing renewed inflationary pressure. The NBS’s challenge will be managing that trade-off without allowing domestic cost pressures—especially those tied to services wages—to reassert themselves.