HNB: Inflation is expected to be around four percent this year

During this year, inflation is expected to be around four percent, assesses the Croatian National Bank (HNB) following the release of the first estimate from the Croatian Bureau of Statistics, which showed that the inflation rate in December weakened to 4.5 percent, down from 4.7 percent in November. According to the first estimate from Eurostat, inflation measured by the harmonized index of consumer prices (HICP) continued to slow down in December (to 5.4 from 5.5 percent in November). As explained by the central bank, this was contributed to by reductions in the annual growth rates of prices for all major components of inflation except energy.

– The reduction in inflation on an annual basis reflects a noticeable easing of current inflationary pressures in the fourth quarter of this year, along with a favorable base effect, namely the cessation of relatively high monthly price increases from December 2022 on the year-on-year inflation rate. On the other hand, the annual inflation rate for energy has noticeably increased due to unfavorable base effects, namely a significantly more pronounced decrease in oil derivatives in December compared to November recorded last year – it is stated in the commentary.

Noticeable slowdown

The annual inflation rate for energy prices thus increased from -4.1 percent in November to -0.5 percent in December, while inflation for food prices decreased significantly (from 7.7 percent in November to 6.5 percent in December), industrial products (from 4.6 percent to 3.7 percent), and services (from 8.6 to 8.1 percent).

– The reduction in inflation for industrial products and services also reflected a noticeable slowdown in the annual rate of core inflation (which excludes energy and food prices), from 6.8 percent in November to 6.1 percent in December. However, it remains elevated, primarily due to still high inflation in service prices, which has been significantly influenced by pressures arising from strong wage growth and solid demand – assesses the HNB.

At the annual level, the average annual inflation measured by HICP slowed down from 10.7 percent in 2022 to 8.4 percent in 2023. Inflation measured by the national consumer price index, according to the first estimate from the CBS, slowed down to 4.5 percent in December, from 4.7 percent recorded in November. According to the first estimate from Eurostat, total inflation in the euro area measured by HICP accelerated, primarily due to the effects of a significantly more unfavorable base effect on energy price inflation than is the case in Croatia, from 2.4 percent in November to 2.9 percent in December, emphasizes the HNB

– However, core inflation in the euro area continued to slow down, dropping from 3.6 percent in November to 3.4 percent – it is highlighted in the commentary.

Strengthening momentum

– The momentum of core inflation (quarterly rates of change on an annual basis) in December increased very slightly, reflecting a strengthening of the momentum of inflation in industrial products and services, but all mentioned momentum levels remain low. In contrast, the momentum of food and energy price inflation, as well as the momentum of total inflation in December, continued to slow down – states the HNB.

After achieving 8.4 percent in 2023, a continuation of the slowdown in inflation is expected in 2024, and it could amount to four percent for the entire year of 2024, say the central bank.

– At the same time, the annual inflation rates for all major components should decrease, especially for food and core inflation, under the influence of the continued spillover of lower energy prices and other raw materials onto the prices of goods and services – it concludes in the commentary.