Croatia enters galloping inflation: Prices rose by 10.8 percent in May

Inflation in Croatia has transitioned from creeping to galloping. According to recently published data from the Croatian Bureau of Statistics, prices in May were 10.8 percent higher than in the same month last year.

For consolation, inflation did slow down a bit in May. Our cost of living increased 1.4 percent, while in April it was 2.4 percent. However, the most significant increases in the past month were in food and non-alcoholic beverages (2.1 percent), meaning that the annual increase of 15.2 percent in this category represents the tightest belt tightening for the poorest, who spend the largest portion of their household budget on food. (On average, nearly 26 percent of expenses go to this category.)

Housing costs are the next important category, having risen by 0.5 percent in May, which translates to an annual jump of 9.2 percent. Transportation, meanwhile, saw a price increase of three percent in May due to rising fuel prices, and a staggering 19 percent over the year.

These three categories account for more than 57 percent of expenses, and all are at the top of the annual price increases. 

When viewed by specific groups, the highest average annual price increase was recorded in the Energy group, at 21.5 percent (contributing 33.4 percent to the increase).

Overall, excluding energy, consumer prices were up by 8.7 percent and 5.9 percent excluding energy and food. Service prices increased by 4% annually, thus joining food and energy in the growth dynamics, which is a result of both increased demand and the expected convergence towards the European average.

RBA analysts expect that elevated, and even stronger double-digit growth rates will remain present in the next quarter while a certain calming could be recorded as the year comes to a close. The latter will mainly be due to the base period effect and, to a lesser extent, a slowdown in economic activity. They do not expect a drop in energy and food prices, but rather just a slowdown and possibly a calming at currently elevated levels.

Some inflationary pressures will carry over into next year, confirming that Croatia and other European countries will face stronger, but still manageable inflationary pressures in the medium term. Therefore, RBA analysts have also revised their forecast for the annual inflation rate for this year and 2023 upwards. This year, they expect an average annual increase in consumer prices of 9.2 percent and 4.1 percent in 2023.