Yesterday, the Croatian Bureau of Statistics released its flash estimate for the Croatian CPI, for the month of August 2023. According to the estimate, the CPI grew by 7.8% YoY, and 0.6% MoM in August.
The latest flash estimate released by the Croatian Bureau of Statistics shows that the inflationary pressures in Croatia are far from over, with growth recorded both on a YoY, but also on a MoM basis. Accordingly, the CPI grew by 7.8% YoY, and 0.6% MoM.
Croatian CPI (February 2013 – August 2023, %)
Source: Croatian Bureau of Statistics, InterCapital Research
Breaking this growth into components of the index, Food, beverages and tobacco grew by 10.1% YoY, Services grew by 7.8%, Non-food industrial goods without energy by 7.4%, and Energy grew by 4.3%. Meanwhile, on a monthly basis, the Energy component grew by 2.7%, Services by 0.7%, and Food, beverages and tobacco by 0.2%. On the other hand, Non-food industrial goods without energy grew by 0.5%. It should be noted that this is only the flash estimate, and the final more detailed version will be released on 15 September 2023.
Overall, the inflation continues to put pressure on disposable income in Croatia, and given the fact that energy prices, which were the main driver of inflationary pressure in 2022 and for a lot of 2023, seemed to have somewhat subsided. It has to be noted that energy demand during the hot summer months is usually higher, so this also played an effect. Besides this, growth in Services is expected, as the main component of services is the tourism and hospitality industry. Over the last period we have seen various news and articles reporting about price growth of accommodation which is exceeding double-digit levels compared to the previous year. Last year, services have also recorded double-digit growth compared to 2021 so the overall growth in the Services is surely driven by this. Furthermore, the growth in Food, beverages and tobacco has been the main growth driver of inflation has been the main growth driver of inflation as the energy prices have stabilized. And this component is surely having the largest impact on the disposable incomes in Croatia. Lastly, as Croatia is now part of the Eurozone and as such is under the effect of interest rates set by the ECB, a stabilization in inflation would come from a reduction in borrowing. However, thus far this has not proven to be the case, at least not to the extent that was expected. This of course is tied to the main driver of borrowing in Croatia which is real estate purchases, seen also as a form of investment and saving. As such, the increase in the interest rates which was supposed to have a reductive impact on inflation thus far hasn’t been able to tame inflation, especially in more stickier core inflation components such as Food and Services.
Using the harmonized index of consumer prices (HICP) which allows comparisons to other EU members, Croatia stood at 8.5% YoY in terms of inflation, while the Euro area average stood at 5.3% YoY. Compared to countries in the region (ones available), Slovenia’s inflation stood at 6.1%, Italy’s stood at 5.5%, and Austria’s at 7.6%. Compared to larger European countries, Germany’s inflation stood at 6.4% YoY, France’s stood at 5.7%, and Spain’s stood at 2.4%. In fact, out of all the available countries, Croatia has the 2nd largest HICP growth only behind Slovakia, which stood at 9.6% YoY. As such, it would seem that the inflationary battle is far from over in Croatia.
HICP comparison with available EU countries (August 2023, YoY, %)
Source: Eurostat, InterCapital Research