Serbia’s inflation rate moved closer to the National Bank’s target during the first five months of 2026, but the international commodity environment is making further monetary easing more difficult. Consumer prices increased 2.9% year on year in January-May, down from 4.3% in 2025 and 5.3% in 2024.
The improvement is substantial compared with the inflation shock of 2023, when prices increased 15.6% in the first five months. Inflation had already reached 9.2% in the corresponding period of 2022. The 2026 result confirms that the broad post-pandemic and energy-related price surge has largely passed.
The direction changed during the spring. Inflation accelerated from March and reached 3.5% in May, driven primarily by petroleum-product prices. The expiry of restrictions on retail margins did not cause a significant immediate price correction, suggesting that food and consumer-goods inflation remained relatively contained.
Inflation expectations are more cautious than the realised average. Financial-sector expectations for the following year stood at 4% in May and June, while medium-term expectations ranged between 3% and 3.5%. Market participants therefore expect inflation to remain inside the NBS corridor but above the central tendency recorded at the start of 2026.
The NBS has kept its reference rate at 5.75% since September 2024. Relative to May inflation of 3.5%, the policy rate represents a positive ex-post real rate of approximately 2.25 percentage points. Against the January-May average, the real gap is even wider.
This restrictive position supports the dinar and helps anchor expectations, but it also raises financing costs for companies and households. Corporate lending still increased 12.1%, household credit 21.1% and total domestic credit 17.1%, showing that demand for finance remains strong despite high nominal rates.
The international oil market is the most immediate threat to the inflation path. By July, Brent was 18.3% higher than at the beginning of the year, while WTI had increased 20.1%. Higher crude prices feed into Serbian inflation through fuel, transport, agriculture, construction and imported goods.
Coal increased 21.9%, creating additional pressure for electricity and industrial users exposed to imported fuel or regional power prices. Copper rose 6.7%, aluminium 3.3%, wheat 8% and soybeans 9.8%, widening the range of potential cost increases.
Natural gas moved in the opposite direction, falling 12.2% from the start of the year. Lower gas prices can reduce costs for heating, industrial processes and gas-fired electricity, but the benefit may be insufficient to offset higher oil, coal, metal and agricultural commodity prices.
Serbia’s specific energy structure adds uncertainty. The unresolved future of NIS affects domestic refinery production and fuel imports. A disruption could amplify the global oil shock by increasing demand for imported petroleum products and raising transport and logistics costs.
Exchange-rate stability provides a partial defence. The dinar averaged RSD 117.3938 per euro and RSD 100.6835 per dollar during the first half. Since many commodities are priced in dollars, movements in the dollar-dinar rate can either magnify or soften changes in international prices.
The NBS’s foreign-exchange reserves reached €29.9 billion, giving the central bank a strong capacity to preserve orderly currency conditions. Gold accounted for slightly less than 23% of reserves, providing diversification during geopolitical and inflationary uncertainty.
Fiscal policy is becoming more expansionary at the same time. The consolidated deficit widened to €907.3 million in January-May, while public-sector wages, pensions, social transfers and capital expenditure supported domestic demand. Monetary policy must therefore absorb part of the inflation risk created by fiscal and credit expansion.
Real wage growth of 8.6% adds another demand channel. Higher earnings support household living standards after the earlier inflation shock, but consumption can keep service prices and imports elevated. The effect will depend on whether productivity improves alongside wages.
The banking sector is transmitting strong credit growth without a deterioration in asset quality. Non-performing loans remained at 2.09%. The absence of immediate stress gives the NBS less reason to lower rates for financial-stability purposes and more room to focus on inflation.
A premature reduction in the reference rate could weaken inflation expectations or increase pressure on the exchange rate if international rates remain high. Keeping the rate at 5.75% protects credibility but prolongs expensive financing for investment, property and working capital.
The result is a difficult policy balance. Headline inflation no longer requires emergency restraint, yet oil prices, NIS, fiscal spending and rapid credit growth argue against aggressive easing. Serbian monetary policy has moved from fighting an existing inflation shock to preventing a new imported one from spreading through wages, transport and domestic demand.
