Inflation surprises again! Most analysts, in fact, expected a slowdown as we entered this year. The data is, admittedly, for December 2024, but the trend shows a multi-month uninterrupted rise, and if the morning indicates the day, inflation will not quickly cease to be a topic. Specifically,
the inflation rate in Croatia measured by the domestic consumer price index in December was
3.4 percent (year-on-year). According to the upward trends of the last (at least) three months, according to the first estimate from the DZS, inflation for the entire 2024 was a significant three percent. The main components of growth remain services (5.6 percent), followed by the group that includes food, beverages, and tobacco (4.8 percent).
Inflation measured by the internationally comparable Eurostat index, the harmonized index of consumer prices (HICP), is even higher – 4.5 percent, the highest among all eurozone member states. And almost double the eurozone average, which is ‘only’ 2.4 percent. Although it has not fallen below the desired two percent in the eurozone either, in Croatia it is significantly more stubborn. Why?
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—Ljubo Jurčić from the Faculty of Economics states that there are two fundamental reasons pushing the prices of services and food, which drive overall inflation in our country. – Regarding service prices, it is not just about tourism; what drives price growth is the overall cost of labor. It is more expensive due to the demand for missing labor, meaning that workers need to be paid regardless of their productivity or that of the company. Industrial prices are falling, while labor compensation prices are rising, meaning we are paying people more, but not because productivity is increasing, and this is (not only) a very bad trend in the long run. In terms of food, the problem is that we import most of it, and with it, we import prices.
What few people here understand is the fact that EU member states indirectly subsidize food production in various ways, invisibly, during sowing, plowing, digging… which translates into lower national prices, but not into export or import prices in Croatia. All developed member states, such as the Netherlands, Belgium, or Austria, for example, subsidize development, investments, environmental protection, and organic orientation, which are all invisible subsidies that circumvent fundamental EU rules, resulting in food prices in those wealthier countries being lower than in poorer Croatia. And Croatia has no regulatory mechanisms to recognize such practices. It is crucial to understand how the value and price of food are built in the global chain, and since we do not understand this, we are surprised that food prices are rising when they should be falling – concludes Jurčić.
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— The continuation of the price growth trend confirms what Željko Lovrinčević from the Economic Institute has stated several times to Lider and has been warning about all along. The difference between the domestic and Eurostat price indices constantly hovers around 1.2 to 1.3 percentage points (the European index is, of course, higher because it includes non-residents/tourists), which means that the impact of introducing the euro does not condense into one or two years, as it has in most member states, but extends to three to four years. Additionally, although energy prices have so far had a favorable effect on the overall price index, given the geopolitical developments, this will no longer be neutral.
Experts, in fact, expect additional inflation growth in January due to the second round of energy price increases (following the rise in November). Although oil prices are stabilizing, gas prices are already rising in global markets, and a new increase is expected after the interruption of Russian gas supplies to the European market via Ukrainian territory (the route was interrupted on the first day of the New Year, 2025). Yes, we must wait for February and the official announcements for January inflation, but overall, there is no good news for Croatia.
