The latest flash estimate of the Croatian CPI shows an increase of 10.6% YoY and 0.8% MoM in March 2023. The full release is planned for 17 April 2023.
On Friday, the Croatian Bureau of Statistics, DZS, released the flash estimate for the Croatian CPI, for March 2023. According to the release, the Croatian CPI increased by 10.6% YoY, while MoM, it grew by 0.8%.
Starting off with the yearly change first, according to the main components of the index, Food, beverages and tobacco grew by 15.3% YoY, Non-food industrial products without energy by 9.3%, Services by 8.2%, and finally, Energy by 7.5%.
On a monthly basis, the largest increase was recorded by Non-food industrial goods without energy, with 2.2% growth, followed by Food, beverages and tobacco, at 1%, and Services, at 0.2%. On the other hand, Energy recorded a decline of 0.7% MoM.
Croatian CPI (February 2013 – March 2023, YoY, %)
Source: DZS, InterCapital Research
Here we can see several things developing: first of all, even though the decline on a YoY basis is encouraging, it doesn’t tell the complete story, for two reasons. Firstly, the base from which the CPI in March 2023 is compared to is quite high, as inflation in March 2022 increased by 1 p.p. compared to February 2022. If this didn’t happen, then the inflation rate right now would be higher. Also, the monthly CPI can tell us the real story, as it can show us if the inflation is slowing down or not. The 0.8% increase MoM shows us that the inflation rate is not only slowing down but is actually accelerating.
Looking at the breakdown by sectors, we can see that even though the initial growth, especially on the yearly average was driven by higher energy and food&beverages costs, right now, the story is a bit different. Energy actually recorded a decrease in prices, which given the current favorable environment in the energy market (especially compared to several months ago) is expected. However, other segments did record growth, and this even includes categories outside energy and food&beverage segment, meaning that other factors besides energy are driving the inflation rate higher. This is also a result of the prolonged high inflation, meaning costs and wages go up, and the overall prices across the economy have to go up as well. Currently, the only way central banks, and in our case, ECB can combat this is with higher interest rates, which granted, they have been doing. However, with inflation spreading widely across many segments, the increase in interest rates will not be able to affect inflation in the same way across these segments, leading to high inflation rates, even with interest rate hikes. The argument that could be made against this point is the fact that the interest rates haven’t been implemented long enough and need more time to have the desired effect. This is a fair argument, but the problem with it is the fact that as time goes by, it will be harder and harder to gauge what influence these hikes have, as multiple interest rate hikes over a prolonged period is extremely hard to pinpoint when it comes to their direct impact on inflation rates.
