Causes of high inflation in Kosovo

In fact, the inflation rate was driven mainly by a considerable increase in food prices. Since most food consumption by Kosovar households is covered by imports, the price increase primarily reflects rising world market prices. Price increases for services can also explain a significant part of the inflation rate.

Introduction

In October 2025, the inflation rate in Kosovo reached 5.1%, its highest level since April 2023. The inflation rate has been rising steadily since September 2024. The media in Kosovo attribute inflation to several different reasons, often citing the rise in electricity prices as one of the main causes. In this context, it is also suggested that the liberalisation of electricity prices for larger companies in June 2025 is driving the inflation rate.

To understand what indeed drove the rise in inflation over the course of the year, it is worth first understanding how it is calculated. The inflation rate is calculated using the Harmonised Index of Consumer Prices (HICP), which measures the price level of a representative basket of goods purchased by an average household in the country. Food accounts for 32% of the average household’s basket in Kosovo, which is why the inflation rate is particularly sensitive to food price increases. Another significant item are services, which account for 19% of total expenditure. Electricity, on the other hand, accounts for only 2.6% of expenditure.

Contributions to inflation

As can be seen in the chart below, the majority (55%) of the current inflation rate can be explained by increased food prices. 21% is attributable to price increases for services, while increased electricity prices directly account for only 12% of October’s inflation rate. Considering the expenditure structure of Kosovar households, this is not surprising. Due to their low weight, rising electricity prices can only meaningfully influence the inflation rate through secondary effects, i.e. when they lead to price increases of other products that require electricity for their production.

Food prices

Food prices have risen sharply throughout the year. The price increase in October was 8% compared to the previous year. Among foodstuffs, beef and dairy products (including eggs) are the main drivers of inflation. Food consumption in Kosovo is mainly covered by imports. Domestic prices are therefore closely aligned with world market prices. As can be seen in the following chart, 2025 was characterised particularly by a continuous and sharp rise in the world market price of beef, which also drove prices in Kosovo significantly.

World market prices for dairy products also rose sharply in 2025 compared to the previous year. This development is driven by a rise in prices for processed dairy products, especially butter and hard cheese. Approximately two-thirds of Kosovo’s demand for processed dairy products is met by imports, meaning that price increases on the world market have a direct inflationary effect in Kosovo. Price pressure has only been easing since August.

Services prices

Prices for services in Kosovo rose significantly, particularly in September and October, thereby significantly impacting the inflation rate. In October 2025, their price level was 6.3% higher than in the previous year. The main drivers of service prices are price increases in gastronomy, which reflect higher food prices and increased demand due to the strong growth in (diaspora) tourism.

Electricity prices

Kosovar households traditionally pay low electricity prices, which are set by the Energy Regulatory Office (ERO) via tariff groups and are de-facto subsidised. New tariffs have been in force since 1 May 2025, representing an average increase of 16% across all consumption categories. Accordingly, the price of electricity has risen sharply compared to the previous year, but its direct impact on the price level is manageable, as mentioned above, due to its low share of average household expenditure.

Indirect effects of rising electricity prices?

The average 16% increase in electricity prices has naturally also led to rising costs for Kosovar companies. Is it therefore plausible to attribute the price increases for food and services to higher electricity costs? In the case of Kosovo, the answer is clearly no. Electricity costs typically account for only about 1-3% of food manufacturers’ production costs, and the share is even lower for services. A 16% increase in electricity prices should therefore not have a significant impact on consumer prices, especially since most of the food consumed in Kosovo is imported. For these two reasons, it can be assumed that the liberalisation of electricity prices for larger companies, which took effect in June and led to a doubling of electricity prices for these companies, also had only a very limited inflationary effect.

Outlook

Due to the high import orientation of Kosovar consumers, inflation will continue to depend on fluctuations of world market prices. Consumer price developments are particularly dependent on world market prices for products that account for a large share of the representative basket of goods. These include food, LPG gas used for cooking and heating, tobacco/cigarettes, cars and petrol. As Kosovo aims to liberalise the entire electricity market in the long term, further electricity tariff increases for households are foreseeable in order to gradually align the regulated price with the market price. As with the recent tariff increase, this will have limited inflationary effects. Secondary effects from electricity price increases for Kosovar companies will continue to play a lesser role.

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