Unions in the HNB Requested Clarification on How Wage Growth Fueled Inflation

The faster price growth in recent months in Croatia compared to the eurozone average primarily reflects a strong increase in domestic demand for goods and services under conditions of exceptionally high nominal and real wage growth, especially in the public sector, but also in the private sector – this is concluded from the data presented by the Croatian National Bank (HNB) to the education and science unions.

As announced by the HNB at the beginning of the week, Governor Boris Vujčić, Deputy Governor Sandra Švaljek, and members of the management of the Croatian central bank held a meeting at the central bank with representatives of the Independent Union of Science and Higher Education, the Independent Union of Employees in Secondary Schools of Croatia, and the School Union Preporod.

Who initiated the meeting?

In response to a query from Lider, the HNB stated that the meeting was organized at the initiative of the unions.

– The HNB regularly communicates with the interested public and holds meetings with representatives of the clubs of representatives of the Croatian Parliament, as well as institutions, associations, and other social stakeholders who express interest in discussing various topics within the scope of the HNB’s work – stated the central bank. At the meeting, the union representatives were presented with an analysis of inflation in Croatia, focusing on food price inflation and service price inflation as components that have significantly influenced cumulative inflation since 2020. The results of research on the transmission of total wage growth in the public and private sectors to inflation were also presented, and it was explained how different determinants affect inflation, not just wage growth, the HNB added.

Why were the unions specifically interested in this issue? We asked one of the unions that attended the meeting, Preporod. Its president, Željko Stipić, says that the direct impetus was the damage caused to the unions ahead of upcoming actions. – In one daily newspaper, a sensational news item was first published about the increase in teachers’ salaries from 2020 to 2025 by 88 percent, and then the news that ‘higher public sector salaries are the cause of inflation’. Since a study by the Croatian National Bank is mentioned as the source for this second news item, the unions requested clarification – claims Stipić.

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Željko Stipić, president of the school union Preporod

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At the two-hour meeting with the governor and his deputy, where the controversial study was presented along with accompanying slides, it was repeatedly emphasized that wages are generally one of the causes of inflation, but not the largest, and that wages in the public sector represent a quarter of all wages, adds Stipić. – Therefore, there is an influence, albeit not a large one, but it is certainly not true that the increase in teachers’, nurses’, and social workers’ salaries is behind inflation and thus behind price increases – emphasizes Stipić.

A strike is coming soon

– Unfortunately, the statement from the meeting addressed to the public by the organizer presents the key clarification rather obliquely. In a situation where there was no denial of the falsehood published on the front page, and where the meeting occurred post festum, the fact remains that damage was done to the unions, that this happened at a sensitive moment, and that once again, the truth lost the battle against falsehood – claims Stipić. The union he leads, together with the Science Union, submitted a request to the Council for Monitoring and Improving the Wage System in November for a linear increase in coefficients of eight percent for all positions in education and science.

– A request of similar content was subsequently sent to the Prime Minister. Apart from the Prime Minister’s announcement that he would assign his ministers to meet with the dissatisfied unions, nothing else has happened in this regard. Furthermore, the educational unions, precisely due to dissatisfaction with the material position of their members, did not want to sign Addendum I to the Basic Collective Agreement. Therefore, three out of four representative unions today sent a Request to initiate the mediation process to the GSV, which represents a prerequisite for a legally organized strike. If mediation is unsuccessful, a strike in primary, secondary, and higher education institutions and the science system will commence very soon – emphasized Stipić.

The analyses presented to the unions are essentially not new material, but data that the HNB has already communicated to the public. They state that the main causes of inflation in recent years have been supply chain problems caused by the pandemic and the rise in energy and raw material prices following the Russian aggression against Ukraine. – As the impact of the main causes of inflation gradually weakened in recent years, inflation in Croatia also gradually decreased. After inflation measured by the consumer price index peaked at 10.8 percent in 2022, it decreased to three percent last year. However, the perception of inflation remains elevated under the influence of price increases from previous years. Meanwhile, the cumulative inflation rate in Croatia was lower than the accumulated inflation in almost all Central and Eastern European countries, including those that maintained independent monetary policy – states the HNB’s material.

Raw materials, energy…

Thus, total inflation in Croatia, measured by the internationally comparable harmonized consumer price index, amounted to 27.5 percent from mid-2021 to December 2024, while in Hungary it reached 42.4 percent, Estonia 37.6 percent, Romania 33.4 percent, the Czech Republic 33 percent, Poland 32.7 percent, Lithuania 32.4 percent, Latvia 31.3 percent, Slovakia 29.9 percent, and 28.5 percent in Bulgaria – the only exception was Slovenia with a price increase of 20.4 percent.

In parallel with the decrease in the inflation rate, the difference between inflation in Croatia and the euro area average also decreased. However, during the second half of last year, an increase in inflation in the eurozone was again visible, as well as an increase in the differences between inflation in Croatia and the euro area average, the central bank claims. – The increase in inflation reflects base effects related to low energy prices at the end of 2023 and their increase at the end of 2024, as well as the rise in prices of certain agricultural raw materials (primarily coffee and cocoa). Part of the increase in the differences in inflation rates can also be linked to the unfreezing of energy prices in Croatia – states the analysis.

Nevertheless, the faster growth of consumer prices in recent months in Croatia compared to the European average primarily reflects a strong increase in domestic demand for goods and services under conditions of exceptionally high nominal and real wage growth, especially in the public sector, but also in the private sector.

Wage mass grew by 18 percent

– The average real gross salary thus increased by 11.5 percent last year, with growth in public services exceeding 20 percent, while the average gross salary in the rest of the economy in 2024 was 8.3 percent higher than in 2023. If we also consider the increase in the number of insured persons in the HZMO by 54 thousand, the growth of the real gross wage mass exceeded 15 percent, while the mass of nominal gross wages grew by 18.5 percent. In addition to wages, domestic demand was also stimulated by a strong influx of EU funds, as well as a relatively high level of tourism revenue achieved in recent years – they assess at the HNB.

Since the middle of last year, signs of a gradual slowdown in wage growth have been visible. The continuation of this trend, which the HNB currently expects in its projections, should allow for a gradual easing of inflationary pressures. Despite the recent increase in all input costs for companies, business indicators suggest that companies likely have additional room to absorb the increase in costs through moderation in price increases, which would contribute to alleviating pressures on wage growth, and thus reduce the risk of creating a ‘vicious circle’ in which wages and prices compete with each other, conclude the central bank.