The HNB assessed that energy prices contributed most to the inflation slowdown in Croatia in April, and expects further slowdown, among other things, based on the assumption of maintaining energy and other raw material prices on the global market close to current levels, which are significantly lower than last year’s.
The DZS today published the first estimate of inflation for April this year, according to which the annual inflation rate continued to slow down for the fifth consecutive month, amounting to 8.8 percent, after 10.7 percent in March.
As highlighted by the Croatian National Bank (HNB) on Tuesday, all main subcomponents contributed to the overall inflation slowdown, primarily energy prices, thanks to the fading effect of the price increases of gas and electricity in April 2022.
To a somewhat lesser extent, food prices, including alcohol and tobacco, also contributed to the slowdown, with price increases in April being significantly less pronounced compared to the same month last year. However, despite this, the annual growth of food prices remains high, and the contribution of food prices to overall inflation is the largest among the main components, they noted.
Namely, as reported by the DZS, the estimated annual inflation rate for the group including food, beverages, and tobacco was 14 percent, for industrial non-food products excluding energy 8.6 percent, for services 7.8 percent, and for energy 1.1 percent.
The core inflation has also decreased
The HNB emphasized that core inflation has decreased, from ten percent in March to 9.3 percent in April, due to the slowdown in the annual growth of service and industrial product prices, which is also a result of the positive effect of the base period.
Indicators of short-term dynamics of overall inflation, which can be particularly useful in conditions of pronounced changes in inflation trends, continue to indicate a continuation of easing inflationary pressures, the central bank stated, adding that this is largely a result of reduced import pressures due to falling energy and other raw material prices on the global market.
Natural gas and electricity prices are thus 50 percent lower compared to the month before the outbreak of the war in Ukraine, while industrial raw material prices are at their lowest level in the past two years.
Along with lower raw material prices, the HNB noted that the reduction of pressures in global supply chains has continued. However, lower input costs in the production process are currently only relatively mildly reflected in the producer prices of consumer goods.
On the other hand, the “tight” labor market, which is reflected in strong growth in nominal wages at the beginning of the year, linked to labor shortages and low unemployment rates, contributes to keeping current core inflation at elevated levels, although still significantly lower than in mid-last year.
After a slight increase in March, consumer inflation expectations in April decreased and are at their lowest level since the end of 2021. At the same time, in April, the share of companies in the industry and service sector expecting price increases in the next three months decreased, the HNB stated.
Inflation for the entire 2023 around seven percent
In the continuation of the year, a further gradual slowdown in inflation is expected, which could be around five percent by the end of the year, or on average around seven percent for the entire 2023.
– The expected slowdown in inflation is based on the assumed maintenance of energy and other raw material prices on the global market close to current levels, which are significantly lower than last year’s, as well as the continuation of price restrictions on administratively regulated energy prices and basic food products, as well as the forecasted slowdown in inflation in the euro area and the favorable effect of the base period, especially due to the very high level of energy prices in the second and third quarters of last year. Furthermore, although the risks for achieving the projection are becoming more uniform, they remain pronounced, relating to still elevated pressures on core inflation – emphasized the HNB.
