Serbia has largely completed the first phase of its post-inflation adjustment. The sharp price pressures that dominated the previous cycle have eased, inflation expectations are anchored, and headline inflation remains within the National Bank of Serbia’s target band. But the next phase is more complex. The inflation story is no longer only about disinflation. It is now about services prices, oil pass-through, wage growth, credit expansion and the risk of renewed external shocks.
Headline inflation stood at 3.3% year on year in April 2026, after averaging 3.8% in 2025 and falling to 2.7% in December. That is a significant stabilisation compared with the earlier inflation cycle. But core inflation was still 4.4% in April, driven mainly by services. This is the more important signal because services inflation tends to be more persistent and more closely linked to domestic demand.
The NBS expects inflation to remain within the target range through the rest of the second and third quarters of 2026, then temporarily move above the upper bound late in 2026 and early in 2027. The bank expects inflation to return to target by mid-2027. That forecast is credible, but it rests on several assumptions: energy prices must not rise too sharply, wage growth must slow toward productivity growth, inflation expectations must remain anchored, and domestic demand must not overheat.
Energy is the most visible external risk. The April increase in inflation was linked mainly to higher global oil prices and domestic petroleum prices. Serbia is not immune to global energy shocks, and the NBS explicitly cites geopolitical tensions, Middle East developments, transport costs, fertiliser prices and supply-chain risks. These are not domestic policy variables, but they can quickly affect consumer prices, corporate costs and the current account.
The central bank’s response has been cautious. The policy rate was kept at 5.75% in May 2026. That decision reflects a careful balance. Lower rates could support investment and credit demand, but cutting too quickly could reinforce household borrowing, services inflation and exchange-rate pressure. Holding rates steady gives the NBS time to see whether the expected inflation increase remains temporary.
Credit growth complicates the inflation picture. Private-sector lending rose 16.9% year on year in March. Household lending increased 20.9%, with cash loans up 24.0% and housing loans up 20.2%. Strong credit growth supports consumption, residential demand and services activity. It also strengthens bank earnings. But it can add demand pressure if it grows faster than household incomes and productive capacity.
Wages are another key variable. Average net wages rose 11.2% nominally and 8.5% in real terms in January–February 2026. Real wage growth supports consumption and living standards, but it can also feed services inflation if productivity does not keep pace. The NBS expects slower real wage growth aligned more closely with productivity to help inflation return to target. That assumption will be central to the inflation outlook.
The labour-market data are not straightforward. Formal employment fell 0.4% year on year in the first quarter, with weaker employment in manufacturing and trade, while services continued to add jobs. This mix may reduce broad wage pressure over time, but it also indicates that growth is more services-led. Since services inflation is already sticky, the sectoral structure of employment matters.
The exchange rate remains a stabilising factor. The dinar weakened by only 0.2% against the euro in 2025 and 0.1% from the start of 2026 to April. Exchange-rate stability helps contain import-price inflation, supports confidence and anchors expectations. But it is actively managed. The NBS sold €1.205bn net in the first four months of 2026, after selling €580mn net in 2025. The reserve stock is strong, but the intervention data show that stability requires policy presence.
Inflation expectations remain one of the most positive indicators. One-year-ahead expectations in the financial sector were around 3.5% in April according to one survey and 3.8% in May according to another. Medium-term expectations stayed around 3.0–3.5%, close to the target midpoint. This gives the NBS credibility and reduces the risk of a wage-price spiral.
The inflation risk for Serbia is therefore not a return to the previous crisis environment. It is a more subtle risk: services inflation stays elevated, energy prices rise again, wages remain strong, credit expands rapidly, and public investment boosts domestic demand. None of these factors alone is alarming. Together, they explain why the NBS is reluctant to loosen policy too quickly.
Serbia’s inflation story has improved substantially. But the final stage of stabilisation is often the hardest. The country has moved from emergency disinflation to a more delicate phase in which monetary policy must protect credibility while allowing investment and credit to support growth. The next test is whether inflation can return to target by mid-2027without requiring a sharper policy response.
