By late 2025, Serbia appeared to have achieved something many European economies struggled with: inflation eased without tipping the economy into recession. Consumer price growth moderated into the low single digits, real household incomes stabilised, and macro volatility declined. On the surface, this looked like stabilisation. For competitiveness, however, this disinflation is largely cosmetic. It improves purchasing power but does not repair the cost structures that determine export viability, investment appetite, or CBAM exposure. In 2026, this distinction becomes critical.
The core problem is that headline inflation measures the average change in consumer prices, not the structural evolution of production costs. An economy can experience falling inflation while its competitiveness deteriorates. Serbia’s 2025 data fit this pattern closely.
Consumer prices decelerated largely because food price spikes eased and energy prices stabilised relative to their 2022–2023 peaks. This benefited households and reduced political pressure. But beneath this surface, producer prices and input costs remained elevated. Electricity, gas, logistics, and imported intermediate goods continued to price above pre-crisis norms. For export-oriented manufacturers, these inputs matter far more than retail food prices.
This divergence creates a dangerous illusion. Policymakers and investors may read falling inflation as a sign that cost pressures are easing broadly. In reality, costs are being redistributed rather than eliminated. Household-facing inflation falls, while producer-facing costs remain sticky. The result is margin compression in tradable sectors rather than relief.
For manufacturing exporters, competitiveness is determined by unit cost trajectories, not consumer price indices. When wages rise, even moderately, and energy costs remain volatile, unit labour costs increase unless productivity improves. The statistical data show limited productivity gains in 2025, largely because investment and construction weakened. This means that disinflation did not translate into lower unit costs; it translated into lower pricing power.
In 2026, this becomes more visible. Exporters face EU buyers who are increasingly unwilling to absorb cost increases. Contracts shorten. Price renegotiations become more frequent. Suppliers with rising unit costs but limited transition credibility are re-scored downward. None of this shows up in CPI data, yet it shapes trade outcomes.
The interaction with CBAM further complicates the picture. CBAM costs are linked to embedded emissions, not consumer prices. Falling domestic inflation does not reduce embedded carbon intensity. If anything, it can mask the urgency of decarbonisation by creating a false sense of stability. Exporters may delay investment in energy efficiency or electrification because macro conditions appear calmer. By the time CBAM charges bite more fully, adjustment becomes more expensive.
There is also a fiscal dimension to this illusion. Disinflation reduces nominal revenue growth from consumption taxes, tightening fiscal space unless offset by volume growth or structural reforms. At the same time, energy and carbon-related costs increasingly leak abroad through CBAM rather than being captured domestically. The result is a macro environment that looks stable but is quietly losing financial flexibility.
Inflation moderation also interacts with wage dynamics in a counterintuitive way. As inflation falls, nominal wage increases become more visible in real terms. This supports consumption, but it also raises labour costs for employers. In sectors where productivity growth is weak, this directly increases unit labour costs. Exporters then face a choice: absorb the cost, raise prices, or reduce investment. Most choose the first two, at least temporarily, reinforcing margin pressure.
Energy costs remain the key missing link. Even with stable consumer prices, electricity and gas costs remain volatile and structurally misaligned with EU benchmarks due to Serbia’s generation mix and grid constraints. This volatility feeds directly into producer price uncertainty. An exporter facing uncertain energy costs cannot price long-term contracts confidently. Buyers respond by shifting risk back onto the supplier. Again, this has nothing to do with CPI.
The statistical decoupling between inflation and competitiveness also explains why investment did not rebound in 2025 despite improving macro indicators. Investors do not respond to CPI; they respond to expected returns. When energy costs, carbon exposure, and regulatory alignment remain uncertain, expected returns stay constrained even if inflation falls.
In 2026, this decoupling persists. Inflation is likely to remain moderate, supporting household stability. But unless energy investment, grid upgrades, and productivity-enhancing capex accelerate, competitiveness will not improve. In fact, it may worsen as external constraints tighten.
This is particularly relevant for energy-intensive and CBAM-exposed sectors. Falling inflation does not lower the carbon intensity of electricity or gas. It does not improve grid reliability. It does not shorten payback periods for electrification projects. Without targeted intervention, disinflation simply buys time while structural issues accumulate.
The danger of misreading inflation is strategic. Policymakers may conclude that macro stabilisation allows for gradualism. Firms may postpone difficult investment decisions. Investors may underestimate transition risk. By the time competitiveness erosion becomes visible in trade balances or employment, adjustment options narrow.
The correct interpretation of Serbia’s inflation data is therefore paradoxical. Falling inflation is good news for households and short-term stability. It is neutral at best for competitiveness, and potentially negative if it delays structural reform. In an economy facing CBAM, energy repricing, and EU supplier re-scoring, competitiveness depends on cost structures that CPI does not capture.
In 2026, Serbia’s challenge is not to preserve low inflation at any cost. It is to ensure that stabilisation translates into lower unit costs and higher productivity, particularly in tradable sectors. That requires investment, energy reform, and fiscal alignment—not complacency.
Disinflation stabilises the surface of the economy. Competitiveness is determined beneath it.
