In December 2023, the Croatian CPI growth amounted to 4.5% YoY, while it declined by 0.5% MoM, according to the flash estimate. We emphasize this is “only” the second month to note a MoM decline in CPI. We expect that inflation in the US and the Eurozone will continue to slow down and that the average inflation in these economies would amount to around 2.5% in 2024.
Last week, the Croatian Bureau of Statistics released the flash estimate of the Croatian CPI growth, for the month of December 2023. According to the estimate, the Croatian CPI increased by 4.5% YoY, but it declined by 0.5% MoM. However, one has to note that CPI was already significantly elevated in the same period last year, amounting to a 13.1% growth YoY, marking only one month after the highest point of CPI growth. As such, the 4.5% YoY increase is more due to the effect of the high base, rather than the real and continued slowdown in inflation.
Croatian CPI YoY growth (February 2013 – December 2023, %)
Source: Croatian Bureau of Statistics, InterCapital Research
However, the MoM data is more encouraging, as it demonstrates that a slowdown in inflation has started to take place. Of course, this is “only” the second month of the seen decline, and it will require several consecutive months to be able to conclude that the inflationary pressures have started cooling off.
Here we can also see a trend that has been prevalent for quite a while now. Due to the continued elevated energy prices, inflation spilled over to other categories. Inflation in Food, beverages and tobacco has been present almost from the start, while Services inflation is mostly tied to the fact that inflationary pressures on energy and food started all the way back in 2021 due to supply chain issues related to COVID-19 restriction, inflation in Services was subdued due to the lack of demand for them. This would of course mainly relate to tourism, the main service offered in Croatia, but also other affected industries by the pandemic, such as restaurants, cinemas, theatres, etc., which all recorded price hikes.
Next up, we can also look at the harmonized index of consumer prices, HICP, which allows us to compare Croatia to other European countries. In terms of overall Euro area inflation, it amounted to 2.9% YoY. However, we emphasize that the previous month’s inflation in Euro area amounted to 2.4% YoY. The jump from 2.4% in November to the current 2.9% can be attributed to the energy products during December, even though energy noted a YoY double-digit decrease overall. The jump occurred as most euro countries stopped with state subsidies for electricity and gas, leading to the jump in inflation on a YoY basis. Finally, for Croatia, annual growth amounted to 5.4%, while the monthly rate amounted to -0.3%.
Comparison of HICP change with available European countries (December 2023, YoY, %)
Source: Croatian Bureau of Statistics, InterCapital Research
As we can see in the yearly data, Croatia once again recorded the 3th largest HICP, only behind Slovakia’s 6.6% and Austria at 5.7%. Slovenia meanwhile, recorded 3.8% growth, while other European heavyweights, such as Germany, France and Spain recorded annual inflation in ethe range of 3-4%.
We expect that inflation in the US and the Eurozone will continue to slow down and that the average inflation in these economies would amount to around 2.5% in 2024. During 2024, we see three to four cut rates starting in Q2 2024. In other words, a 75bps or 100bps decline in the Fed’s reference rate, which is currently standing at 4%. Decrease in prices of food and basic goods, coupled with the removal of difficulties in supply chains should be reflected in decline of consumer goods prices growth.
Inflation has room for further decline
Source: InterCapital Asset Management, Bloomberg
