As we are highly impacted by inflation, we decided to present you with a growth in price levels in Croatia for a specific category of goods and show a cumulative price level growth since the inflation started boiling.
We are all aware of double-digit inflation currently present in more or less the whole EU. Consequently, we decided to present you with an increase in price levels in Croatia for a few goods categories like bread, meat, milk, eggs, etc… Further, we put inflation in perspective since it appeared above the acceptable levels.
With that said, we emphasize that inflation is a theme that can start very wide and never-ending discussions that can go on and on. It is a very complicated matter with plentiful implications, underlying and dependents. We will only scratch the surface of why it is so complex, but in this blog, we will focus „just“ on what happened and which categories increased the most in price levels.
First things first, let’s just remind ourselves of where Croatian inflation currently stands. You can read it more details about it here. Overall, we note that December was the first month with a MoM price decrease, finally representing that growth in inflation is stopping. Further, with a new currency under ECB, January was the first month the Croatian Bureau of Statistics published preliminary inflation data already. January MoM inflation amounted to 0%, which is something to emphasize.
Croatian CPI (January 2013 – January 2023, %)*
Source: DZS, InterCapital
*Data for January 2023 based on the 1st estimate
Now let’s just slightly dig into why inflation can be tricky and why it’s a very complicated matter if viewed only superficially.
Inflation is commonly known as an increase in the general price level of goods and services in an economy (for the general public it translates into the phrase „inflation means the money loses its value“). But let’s get more specific here. We said inflation is an increase in the general price level. So, the current general price level is already an important factor in the calculation of inflation that can easily pass under the radar. And inflation is not equal to a price level but equal to an increase in it. So, with that said let’s get to the point. Last week, the first-ever flash estimate of the Croatian CPI was published, amounting to 12.7% YoY, while it stood steady a MoM basis. But, what does the mentioned 12.7% inflation actually says to us? That price increased 12.7% on a yearly basis, of course. But the prices in January 2021 were already influenced by higher single-digit inflation.
Consequently, we decided to present you with how much the prices increased since the inflation started „boiling“ to actually present you with numbers that might mean something and give an accurate representation, rather than just saying „inflation is 12.7% YoY“. In this month specifically, the mentioned preliminary inflation for January 2023 is 12.7%. But, this means prices increase 12.7% after already being higher by 5.7% YoY in January 2021, meaning that the overall increase in prices is more elevated than „just 12.7%“ if we compare it to January 2020, the point from when inflation actually started to occur.
Therefore, to simply conclude everything said, we decided to present you with how much the prices have increased since the beginning of notable inflation with the goal of showing that overall increases in prices are significant. For this, we used annual average inflation for the period.
Annual average CPI growth compared to 2020
Source: DZS, InterCapital Research
To further decompose mentioned inflation, we decided to present you with specific food categories like bread, meat, eggs, etc… We find price changes for those categories to be highly informative for an individual to get a sense of how the prices developed. Moreover, those categories make up for a more relative share in consumer income for an individual with lower income in absolute terms. For the mentioned, we used data from Eurostat, which Eurostat started publishing just this month.
However, we do note that this calculation of price changes slightly differs from the calculation for the Croatian CPI numbers as Eurostat uses the Harmonised index of consumer prices with a goal of comparable price developments across the whole EU and Euro Area, while Croatian Bureau of Statistics uses its own method and basket of goods for calculating CPI. With that said, below you can see the price changes of a few selected categories.
Price changes for December 2022 compared to December 2020 (%)
Source: Eurostat, Intercapital Research
For this, we compared the latest data for December 2022 with December 2020, so again – comparing with the data before the inflation took its toll. One can notice the biggest reported increase in prices was noted for eggs, which one could have already seen in media in the previous month and it amounted to a 69.1% increase since the inflation began. Potatoes are closely following with a 60.4% price increase. Further, bread and sugar both noted an increase of 48.6%, while the category Milk, cheese & eggs increase by 42%. Overall, food as the whole category increased by 29.9%. Also, we also wanted to emphasize that, unfortunately, wine and beer too, experienced double-digit growth in prices of 23.9% and 11.1%, respectively…
In January 2023, CROBEX experienced a strong increase of 6.6% MoM, ending the month at 2,110.79 points.
In January, we have seen one of the faster recoveries of CROBEX, when it increased by 6.6%, above indices such as S&P500. The total equity turnover on the exchange, however, is telling its own story. In January 2023, it amounted to a total of EUR 16.7m, which is a decrease of 63% YoY, and 21.8% MoM. If we excluded blocks, then the equity turnover would amount to EUR 14.2m, a decrease of 44% MoM, and 6% YoY. This would mean that during the month, the block turnover accounted for 15% of the total equity turnover. In total, there were 3 block trades during the month, Imperial Riviera at EUR 1.58m, Adris pref. at EUR 655.7k, and Zagrebačka banka, at EUR 270k. Furthermore, this would also imply an average daily turnover (excl. blocks) of EUR 675.9k.
Turning our attention to the top 10 most traded stocks, in total, they recorded a turnover of EUR 9.57m, accounting for 67% of the equity turnover (excl. blocks) during the month. The highest turnover was recorded by HT, at EUR 1.52m, or 11% of the total, followed by Podravka, at EUR 1.45m, or 10% of the total, Valamar Riviera, at EUR 1.28m, or 9% of the total, and Zagrebačka banka and SPAN, both at EUR 1m of turnover, or 7% of the total, respectively. This would also mean that the top 5 most traded stocks accounted for 44% of the total turnover.
Looking at the largest index on ZSE, CROBEX, we note that it recorded an increase of 6.6% during the month, and ended at 2,110.79 points. CROBEX10 also experienced a large increase, growing by 6.83% MoM, and ending it at 1,235.09 points.
Performance of CROBEX constituents in January 2023 (MoM, %)
Source: ZSE, InterCapital Research
In the CROBEX itself, the largest increases were recorded by AD Plastik, which grew by 23.8%, followed by SPAN, at 16.11%, ZABA, at 13.5%, Podravka, at 12.7%, and Viktor Lenac, at 11.63%. The increase recorded by both of the indices, however, was quite surprising as it was mostly driven by the somewhat more positive sentiment on the overall equity markets. This sentiment itself was driven by warmer-than-expected winter, inflation stabilization, as well as the general macroeconomic outlook being less bleak than it seemed a couple of months ago. Coming back to the CROBEX however, due to the weights that stocks have in the index, the real drivers of the growth are somewhat different than the top companies by individual performance.
Impact of the CROBEX constituents on the CROBEX’s price movement in January 2023 (% of the total)
Source: ZSE, InterCapital Research
As noted, the index recorded a growth of 6.6% MoM in January. The largest contribution came from Podravka, which increased by 12.7% during the month, and due to its weight in the index, contributed 1.5% of the 6.61% growth, or 22.9% share in that growth. Next up we have ZABA, which contributed 0.95%, or 14.3% share in the growth, Končar at 0.84%, or 12.7% share in total, and Ericsson NT and Adris (pref.), with 0.74% and 0.73%, contributing 11.2% and 11.1% to the overall index growth, respectively. This would mean that the top 5 stocks gave 4.78% out of the 6.61% overall index growth, or in other words, 72% of the index’s growth during the month came from these 5 stocks.
CROBEX10, similar to CROBEX, has almost the same composition, except it has 10 instead of 17 stocks, and it includes Arena Hospitality Group. As such, its price movements were also under the influence of similar stocks, with Podravka driving the price increase the most again, at 2.7%, or 40% of the total growth of CROBEX10 (6.8% MoM). Due to different weights in the index, Podravka is followed by Adris (pref.) and Končar, both contributing 1%, or 15% of the total to CROBEX10’s price growth, respectively. They are followed by Atlantic Grupa, which contributed 0.7%, or 11% of the total growth, and Hrvatski Telekom, which contributed 0.6%, or 7% of the total growth. This would mean that these 5 stocks contributed 88% to the growth of the index in January 2023.