Serbia’s annual inflation rate fell to 1.9% in July, its lowest level in several years, strengthening the case for eventual monetary easing even as stubborn services inflation and a sharp rise in energy prices argue against a rapid shift by the central bank.
Consumer prices fell 0.2% from June, while the annual rate declined from 2.7% in June and 3.5% in May. The disinflation was driven overwhelmingly by food: food and non-alcoholic beverage prices were 6.1% lower than a year earlier, while unprocessed food was down 12.9%.
The headline number, however, conceals a much less comfortable underlying picture.
Energy prices were 9.3% higher year on year, services prices were up 6.5%, and the measure excluding energy, food, alcohol and cigarettes remained at 4.5%. In July alone, services prices increased 1.1%, even as falling food prices pushed the overall index lower.
That divergence matters for the National Bank of Serbia. The central bank has held its reference rate at 5.75% since late 2024, maintaining a sizeable real interest-rate cushion as inflation has retreated.
On the surface, inflation below 2% alongside a policy rate close to 6% would appear to provide substantial room for easing. But Serbia’s inflation structure suggests caution.
Much of the latest disinflation reflects volatile food categories rather than a broad-based cooling in domestically generated prices. Services inflation above 6% points instead to continued wage and demand pressures, while energy inflation is working in the opposite direction to food.
The distinction will become increasingly important if domestic demand continues to strengthen. Economic growth accelerated in the second quarter, real wages are rising, household lending remains active and retail turnover is expanding.
For the NBS, the question is therefore not whether inflation has fallen. It plainly has. The harder question is whether 1.9% represents the new underlying inflation rate or merely an unusually favourable food-price configuration.
The July data suggest the latter risk cannot yet be dismissed.
