In December 2022, the producer prices of industrial products on the domestic market increased by 19.9% YoY. On a monthly basis, however, they decreased by 2.6%.
Recently, the Croatian Bureau of Statistics (DZS) published the latest update regarding the industrial producer prices in Croatia, for the month of December 2022. According to the report, the producer prices of industrial products on the domestic market increased by 19.9% YoY in December 2022. However, the yearly data at this point does not tell us much, as the producer prices were already elevated in Q3, and especially Q4 of 2021. As such, looking at the monthly data is more prudent as it can show us if the price growth is accelerating, or decelerating.
As such, on the monthly basis, the producer prices of industrial products actually decreased, by 2.6%. Also, looking at the producer prices without Energy, which has been by far the largest contributor to the price growth makes sense. Excluding Energy, on a monthly basis, the prices actually increased by 0.8%, while on a YoY basis, they increased by 11.5%.
What does this mean? It means that Energy price decrease is one of the main deflationary drivers on the MoM basis, and this is something that could have been seen in the last quarter of 2022, as prices of oil, and especially gas stabilized to levels last seen before the Russian invasion of Ukraine. In fact, the above-average warmth in Europe during December, and as it currently stands in January, means that there is a lot less electricity and heating requirement than one would expect. Combined with the demand reduction (on the EU level, an avg. of 15%) already communicated during the summer, this led to the reduction in the aforementioned commodity prices, and by extension, electricity prices.
Producer prices of industrial products (June 2016 – December 2022, %)
Source: DZS, InterCapital Research
Moving on to changes by segments, on an MoM basis, prices of Non-durable consumer goods increased by 1.7%, Capital goods increased by 0.1%, while on the other hand, Energy decreased by 9.2%, Intermediate goods by 0.3%, while remained stable in Durable consumer goods. Meanwhile, on a YoY basis, producer prices of industrial products in Energy increased by 43.5%, in Non-durable consumer goods by 14.5%, in Durable consumer goods by 12.5%, in Intermediate goods by 9.2%, and in Capital goods by 5.9%.
Looking at the producer prices by sectors, on an MoM basis, prices in Electricity, gas, steam, and air conditioning supply decreased by 5.8%, in Manufacturing by 1.7%, and in Mining and quarrying by 0.1%. On a YoY basis, producer prices in Electricity, gas, steam and air conditioning supply increased by 62.4%, in Manufacturing by 12.5%, while they decreased in Mining and quarrying by 19.2%.
The data then is both positive and mixed for December. The slowdown in producer prices does imply that the main driver of growth, Energy, has stabilized and stopped growing. At the same time however, even excluding Energy, the YoY growth is over 10% (11.5% to be exact), meaning that the inflationary pressure has spilled to other segments of the industry. This is quite worrying, especially if we consider that the prices were already elevated at the end of the last year. This would imply that the continued pressure on prices (costs of inputs for companies) for months, and even over a year in the Energy category, drives the inflation of other segments up as well. The issue with this spillover is that it is quite hard to control, and as it took months to get to it, it will also take months for it to stabilize, and that is months without negative downturns such as one stemming from colder than-expected winter (in the coming period) or reduced oil&gas supply, for any reason.