The second-round test: why Uruguay hiked and Serbia held on the same day

Victoria Shinder10 October 2026, 09:562 min read

On 8 October two small open economies facing the same imported energy shock took opposite decisions. Uruguay raised its policy rate to 6%; Serbia held at 5.75%. Read side by side, the statements show they are applying the same rule — and that the difference lies in where each sees the risk.

The shared rule: look through the first round, fight the second. Uruguay's central bank says its hike does not aim to reverse "the direct effect of temporary increases in energy and food", but to "limit their persistence" before they pass into other prices and expectations. Serbia's says it will respond "using all available instruments" if higher oil prices have "stronger second-round effects on other prices through inflation expectations". Both separate the price level jump, which monetary policy cannot undo in time, from its spread, which it can.

Why the decisions differ.

• Where inflation is. Uruguay's CPI was 4.7% in September, already above its 4.5% target, with the survey average of expectations at 4.71% and firms at 5%. Serbia's inflation was 2.2% in August, and even the expected rise to about 4% — largely a base effect from last year's margin cap — stays inside its tolerance band.
• What is cushioning the shock. Serbia points to excise cuts on fuel and the use of energy reserves, which have damped domestic pass-through so far. Uruguay names no such buffer and stresses the "proliferation and persistence" of geopolitical and climate shocks.
• The cost of waiting. With expectations near target but drifting, Uruguay chose a small move while it is cheap; Serbia, with inflation still low, kept its powder dry and stated the trigger in advance.

The demand side of the same test. Second-round effects need room to spread, and that room is the output gap. The Bank of Japan's latest estimate puts Japan's gap at +0.55% in Q2 2026, positive for nine straight quarters, with the capital-utilisation component now the larger part. A positive gap is the condition under which an energy shock is more likely to become wage and price persistence — which is why central banks with tight economies talk about the second round earlier than those with slack.

What to watch. For Uruguay, whether services and non-tradable inflation, now stable, start to move. For Serbia, the September and October prints against its own 4% expectation — a figure well above 4% would be the evidence of spread its statement names. For both, the trigger is the same: not the oil price, but what happens to everything else.

This analysis draws on: Banco Central del Uruguay, policy decision of 8 October 2026 — https://www.bcu.gub.uy/Comunicaciones/Paginas/Detalle-Noticia.aspx?noticia=554&title=El-BCU-incrementa-la-Tasa-de-Pol%C3%ADtica-Monetaria-en-25-puntos ; National Bank of Serbia, "Key policy rate kept unchanged", 8 October 2026 — https://www.nbs.rs/en/scripts/showcontent/index.html?id=21768&konverzija=yes ; Bank of Japan, "Output Gap, Potential Growth Rate, and Labor Market Indicators", 5 October 2026 — https://www.boj.or.jp/en/research/research_data/gap/index.htm