Prices of goods and services for personal consumption, measured by the consumer price index, rose by 4.8 percent in November compared to the same month last year, which is the highest rate since February 2013, according to data from the Croatian Bureau of Statistics (DZS).
Further acceleration of inflationary pressures continued in November with a monthly increase of 0.7 percent, which pushed the annual growth rate to 4.8 percent and thus exceeded all expectations, say RBA analysts. – Although such movements seem relatively moderate compared to other Central and Eastern European countries, the fact is that inflation has reached its highest level in almost 9 years – emphasize analysts from Raiffeisen Bank.
On an annual basis, the highest price increase was recorded in the category of transportation, 12.9 percent, and this increase was largely generated by the rise in fuel prices, by 26.6 percent annually, reflecting the rise in prices on global commodity exchanges for crude oil. Annual price growth is also recorded in all other categories.
Food prices, which have a significant share in the basket of goods, continued to rise since July, averaging over six percent on an annual basis. The increase is noticeable in the category of alcoholic beverages and tobacco, by 5.6 percent.
The contribution to the increase in the consumer price index in November compared to October came from food and non-alcoholic beverage prices by 1.5 percent, and clothing and footwear, by 1.3 percent. In the opposite direction, on a monthly basis, were the prices of recreation and culture (for -0.02 percent).
– Since mid-year, due to global factors, but partly also due to this year’s weather conditions in the domestic market, inflationary pressures on food prices have intensified. Food prices, which account for almost a quarter of the consumer basket, rose by 1.6 percent compared to October, or six percent on an annual basis. Expectedly, the rise in energy prices (primarily fuel), with a monthly increase of 0.4 percent, recorded a double-digit annual change (12.8 percent) – say RBA.
Cumulatively, in the first eleven months, the consumer price index rose by 2.3 percent compared to the same period in 2020. About 50 percent of this year’s increase reflects higher energy prices. The spring increase in excise duties on tobacco and alcoholic beverages exerted pressure on these products, so their higher prices explain an additional 13.6 percent contribution to price growth (+5.9 percent annually in the period from January to November). The revived food inflation currently contributes to the average price increase by 13.3 percent.
– It seems that so far the increase in raw materials on the world market, as well as the impact of disruptions in global supply chains, have not played a significant role in the annual growth of consumer prices. Namely, industrial products (excluding food and energy) have increased by only 0.4 percent in the same cumulative period, contributing to the overall growth of consumer prices by about 4.6 percent.
It is clear that the current developments do not reflect the usual pattern of movement (before COVID-19) and are mainly generated by supply-side inflation. Therefore, monetary policy in Croatia has limited instruments to respond against cost inflation, so some inflationary pressures are being attempted to be curbed by administratively limiting fuel prices, as we saw during October and November.
We expect that the coming months will bring further acceleration of inflationary pressures supported by the base effect from the first quarter of 2020. Therefore, already in December, the annual growth rate will exceed 5 percent and thus the average for 2021 will amount to 2.5 percent. Inflationary pressures should be more pronounced in the first half of 2022, especially driven by food and energy prices. The third quarter of 2022 will bring a calming followed by a slowdown as we approach the end of the year. However, even such movements will not be enough to place the inflation rate in 2022 below the average of 2021. Therefore, we revise the annual inflation rate in 2022 to 3.1 percent with pronounced upward risk – emphasize RBA analysts.
