Member of the Main Board of the Croatian Economic Society Željko Lovrinčević spoke on Thursday at the traditional economists’ conference in Opatija about how to combat inflation, highlighting as a major problem that inflation expectations are taking root, thus being factored into business arrangements.
Lovrinčević stated that Croatia chose the moment for the introduction of the euro that coincides with the withdrawal of EU funds, which was not the case for others. He believes that this moment was not good for Croatia, stating that since the introduction of the euro, we have been facing inflation problems.
The introduction of the euro in Croatia has significantly accelerated certain processes and created new imbalances that have not been recorded in other countries, he emphasized.
He mentioned that Croatia has an extremely uncompetitive economy and that the introduction of the euro is a complex process. He assessed that the country was unprepared in a competitive sense, the timing is quite problematic, while everything in the normative part was done correctly.
He assessed as a major problem that inflation expectations are taking root again, and in a way, we are returning to the system we left about 30 years ago, with business entities starting to include it in contracts.
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He also emphasized the importance of whether the price increase has justification in terms of productivity growth, continuing that if so, then there is no problem with competitiveness, but if productivity does not increase, despite the withdrawn EU funds that have largely ended up in administrative and auxiliary activities, we have a problem.
Speaking about what economic policy can do in the fight against inflation, Lovrinčević stated that monetary policy must develop a strong macroprudential policy, as Croatia will be out of sync with the EU economic cycle for a long time, and use them in a timely manner.
He stated that the regulator must prevent the spillover of demands for growing profits from foreign parent companies, which would be used to increase fiscal revenues in the parent countries. He believes that further growth of concentration in the banking system, which he says is slowly but continuously increasing, should be prevented, and a strategy for exiting non-financial monetary assets in the long term should be devised without impacting inflation.
