Vujčić: Inflation could reach nine percent in 2022

Inflation could reach around nine percent this year, which is higher than the current IMF forecast of six percent, said the governor of the Croatian National Bank, Boris Vujčić, on Tuesday during the conference "Eurotransformation of Croatia," organized by Motus Media Group. 

Vujčić emphasized that inflationary pressures are increasing month by month, especially regarding food prices. He also stated that the world, including Croatia, is facing the first significant inflationary pressure after many years.

"The invasion of Ukraine and sanctions against Russia have worsened global growth and inflation expectations," Vujčić stressed, adding, however, that price increases were observed even before the war in Ukraine.

He pointed out that the revision of the inflation projection upwards is largely a result of higher oil and raw material prices, which is why inflationary pressures remain strong.

Strong GDP growth in the second quarter

Let us recall that in April, the HNB revised its estimate of this year’s average inflation rate to 5.2 percent, after 2.6 percent in 2021.

Vujčić also believes that the growth rate of Croatia’s GDP this year will be higher than the 2.7 percent estimated by IMF experts. He expects strong GDP growth in the second quarter of this year.

He emphasized  that the U.S. Fed has begun tightening monetary policy, and the same shift is announced by  the European Central Bank.

Most central banks in countries outside the euro area began tightening monetary policy last year. On the other hand, the Croatian National Bank has not done so as the country is on its way to the eurozone, Vujčić said. 

"The cost of borrowing for Croatia has increased significantly less than in countries outside the eurozone," the governor noted, adding that especially in Hungary and Poland, the spillover of stricter financing conditions on market interest rates is visible. 

He also emphasized that imported goods prices are rising faster than export prices, which worsens the terms of trade, increasing the trade deficit.

"Real economic activity in Croatia is still above pre-crisis levels, with growth concentrated in the service sector," the governor points out, who believes that favorable developments in Croatian tourism could partially offset the negative effects of more expensive energy.

He assesses that personal consumption in Croatia should increase in the upcoming period, as well as that the introduction of the euro will not significantly raise prices, as the price level in Croatia is already relatively high, especially for food and telecommunications. 

"The price level in Croatia in all food categories is above the price levels of Central and Eastern European countries, while our income level is comparable to countries that have introduced the euro," the governor concluded.

Marić: Negative aspects of euro introduction are mostly one-time 

Finance Minister Zdravko Marić stated that the process of introducing the euro concerns every Croatian citizen. The negative aspects of introducing the euro, he noted, will mostly be one-time, and to avoid them as much as possible, the process of introducing the new currency needs to be well communicated with citizens. 

He emphasized that the current inflation has nothing to do with the country’s accession to the eurozone. He reiterated that the conversion rate will likely be at the level determined upon entering the European Exchange Rate Mechanism II, but there is also a possibility of slight deviation. 

He pointed out that he has spoken with representatives from the trade, tobacco, and other sectors regarding price rounding due to the introduction of the euro. He emphasized that, for example, cigarette prices in the European market typically round to tens, not euro cents. 

"We will monitor retail, especially food sales and price rounding," Marić said, adding that prices in hospitality and tourism will also be closely monitored.