Zdeslav Šantić expects inflation to rise next year

Although inflation in the past year has been very low, primarily due to a decline in personal consumption (in the first eight months, consumer prices rose by an average of 0.8 percent), Zdeslav Šantić, an analyst at Splitska banka, estimates that inflation will rise to 3 percent next year.

Šantić states that autumn will very likely bring an increase in inflationary pressures. – The impact of increased excise duties, especially on gasoline, will already be visible in September prices. Additionally, the movement in global commodity markets, particularly in the food sector, will also affect the strengthening of inflationary pressures. The 4 percent increase in producer prices in the first eight months of this year indicates that, following the expected stabilization of personal consumption, increased costs for domestic producers could also be reflected in a somewhat stronger rise in consumer prices. Thus, for the entire year of 2010, we expect an average annual inflation of around 1.5% – claims Šantić, adding that further strengthening of inflationary pressures is likely in 2011, primarily due to the rise in administratively determined prices. He estimates that the postponement of the increase in electricity prices this year will result in a stronger rise in those prices next year.

He notes that it is also possible to expect an increase in utility prices, especially considering the growing deficit in the budgets of local units. Overall, he expects inflation of 3 percent next year. Given the slow recovery of employment in the domestic labor market, it is possible that we will again record a decline in average net wages in real terms next year, along with new pressures on consumption. In the longer term, the intensity of price growth will primarily be determined by Croatia’s entry into the European Union, and price increases will be most pronounced in the services segment, estimates Šantić. However, while he warns of possible inflation, some economists still caution against an even greater danger – deflation, as evidenced by the continued decline in consumption and the postponement of purchases in anticipation of further price drops. A third group of economists warns of stagflation, with an inflation rate higher than the GDP growth rate in the medium term. Whichever ‘scenario’ occurs, none will shift the economy towards the desired development.  (G. G.)