Consumption Growth Streak Broken, Decline Recorded for the First Time in 18 Months

In Croatia, retail consumption experienced its first decline in 18 months of growth, primarily due to high inflation.

The Croatian Bureau of Statistics (DZS) today published a report on retail trade, and according to seasonally adjusted data, consumption fell by 1 percent in August compared to the previous month, while it weakened by 0.2 percent compared to August of last year. Consumption had been continuously growing on an annual basis since February 2021, but this positive streak was interrupted in August.

– The environment of strong inflationary pressures, as well as low levels of consumer optimism, contributed to negative trends, while tourist consumption in the central part of the tourist season certainly mitigated a stronger decline – analysts from Raiffeisenbank Austria (RBA) noted in their commentary on the DZS report.

In August, the turnover from retail trade in food, beverages, and tobacco products fell by 0.6 percent year-on-year, while the turnover from non-food products, excluding motor fuels and lubricants, decreased by 0.9 percent, according to DZS data.

In the first eight months of this year, retail trade turnover increased by 2.8 percent in real terms compared to the same period last year.

Inflation Curbs Consumption

– High annual growth rates from last year, the effect of the base period, and strong global uncertainty will also affect trends in the retail sector. Although we believe that inflation has peaked, high inflation rates in the coming months will act to curb consumption and through a high perception of inflation, which is strongly influenced by rising food and energy prices, as well as most components of the consumer basket of goods and services – RBA analysts stated.

On the other hand, still positive trends in the labor market are expected to have a positive effect on retail trends.

– This is also supported by a successful tourist season through the increase in household disposable income, considering that 60 percent of tourist accommodation in Croatia relates to private accommodation – RBA concluded in their analysis.