Serbia’s central bank is preparing for the possibility of a renewed inflation shock as geopolitical tensions in the Middle East increasingly threaten global oil markets, supply chains and broader macroeconomic stability across Europe.
According to scenario analysis prepared by experts at the National Bank of Serbia (NBS), average inflation in Serbia during 2026 could range from 3.6% in the most optimistic case to as high as 6.5% under a severe escalation scenario linked to prolonged conflict involving Iran and wider disruption across the Persian Gulf energy corridor.
The modeling reflects growing concern among central banks and financial institutions that the current geopolitical environment may trigger a second major inflationary cycle only a few years after Europe emerged from the energy-price shock caused by the Russia-Ukraine war.
Under the NBS base-case scenario, the conflict in the Middle East would gradually stabilize during the second quarter of 2026, allowing inflation to average around 3.6% this year and approximately 4.4% in 2027. The model assumes oil prices averaging roughly $90.7 per barrel without major long-term disruption to global supply chains.
However, Serbian monetary authorities are simultaneously examining substantially more adverse outcomes. The “unfavorable” and “very unfavorable” scenarios assume a prolonged regional conflict, continued pressure on maritime transport routes including the Strait of Hormuz, and significant damage to Middle Eastern energy infrastructure. Under those conditions, imported inflation pressures would intensify sharply through higher oil, transport, fertilizer and industrial input prices.
The inflation risk is especially sensitive for Serbia because the economy remains highly exposed to imported energy costs and external price transmission. Fuel prices directly affect transport, logistics, agriculture and industrial production, while secondary inflation effects often spread through food and services sectors several quarters later.
Recent data already show the first stages of that transmission mechanism. According to Serbian banking-sector analysis, March inflation accelerated primarily due to higher transport costs after global oil prices surged above $100 per barrel during periods of intensified conflict-related uncertainty. Transport prices rose 2.3% month-on-month, representing the strongest increase since late 2025.
The broader concern for policymakers is not simply temporary energy inflation, but the possibility that higher fuel costs begin feeding into core inflation and wage expectations. That dynamic would make inflation substantially harder to control and could force tighter monetary policy for longer than previously expected.
The National Bank of Serbia formally targets inflation at 3% ±1.5 percentage points through 2027, operating under an inflation-targeting framework coordinated with government economic policy. Under the severe conflict scenarios now being modeled, inflation could move well outside that corridor for a prolonged period.
International institutions are already signaling elevated risk. Earlier forecasts from the IMF projected Serbian year-end inflation could approach 7% under stronger external price pressures, while simultaneously lowering growth expectations for the domestic economy.
That combination raises fears of a stagflationary environment — slower economic growth combined with persistent inflation. Similar warnings are now appearing across Europe. Croatian central banker and future ECB vice president Boris Vujčić recently stated that European monetary authorities must remain “very agile and cautious” because the Iran conflict is increasing stagflation risks throughout the continent.
For Serbia, the challenge is particularly delicate because the economy currently depends heavily on external financing, foreign direct investment and stable consumption growth. Higher inflation could weaken household purchasing power, increase corporate financing costs and slow industrial investment precisely at a time when exporters already face mounting pressure from the EU’s tightening carbon and industrial trade framework.
The NBS and Serbian government have already introduced temporary measures intended to cushion imported energy shocks, including export restrictions on petroleum products, temporary excise reductions and state control mechanisms over fuel pricing. Yet policymakers understand that administrative interventions can only partially offset prolonged external inflationary pressure if oil markets remain structurally disrupted.
Another emerging risk lies in agriculture and food production. Analysts note that the Persian Gulf region accounts for roughly one-third of global fertilizer exports. Sustained disruption could therefore feed directly into fertilizer prices, agricultural production costs and food inflation during the second half of the year.
Financial markets are increasingly watching whether Serbia can maintain monetary and currency stability if global volatility intensifies further. The central bank still retains relatively strong foreign exchange reserves — approximately €28.5 billion earlier this year — but persistent imported inflation could complicate exchange-rate management and domestic liquidity conditions.
For investors, lenders and industrial companies operating in Serbia, the inflation scenarios now being discussed by the NBS underline how rapidly geopolitical risk has become embedded into economic planning assumptions. Energy exposure, commodity procurement, logistics resilience and pricing power are once again moving to the center of corporate risk management across Southeast Europe.
