The deflationary period might be coming to an end.
In December 2016, consumer prices in Croatia increased by 0.2 percent year-on-year, which was their biggest increase since November 2014, while for the full year the prices fell by 1.1 percent, reports Lider on January 16, 2017.
On Monday, the Central Bureau of Statistics published data which show that Croatia, after three years, might be leaving behind a period of deflation, given that in December there was the highest increase in consumer prices since November 2014. In the last three years, prices have continuously stagnated or decreased, but their decline was slowed down in recent months. In November prices declined by just 0.2 percent year-on-year, while in December they increased.
“For the first time in 20 months, the prices of goods and services for personal consumption, measured by consumer price index, recorded a year-on-year growth”, said analysts from Raiffeisenbank Austria (RBA), who reviewed the report by the Central Bureau of Statistics.
In December, the highest increase year-on-year was recorded for prices of alcoholic beverages and tobacco (2.6 percent), due to the increase in excise duties, followed by prices of health services (2.4 percent). Prices of transportation increased by 1.5 percent. Prices in restaurants and hotels increased by 1.3 percent, while the prices in recreation, culture and education sector rose by 1.1 percent.
On the other hand, in December, compared to the same month in 2015, the largest decrease was recorded in prices of communication (2.9 percent), followed by prices of housing, water, electricity and gas (2.5 percent), which is mostly a consequence of the fall in gas prices by 17.7 percent. Prices of clothing and footwear were down by 0.6 percent.
For the full year, consumer prices decreased by 1.1 percent, significantly more than in the previous two years. In 2015, prices on average fell by 0.5 percent, and in 2014 by 0.2 percent. “Just like in 2015, incentives for decline in prices came from imported deflationary pressures, with the decline in energy prices being joined by the decline in food prices, due to the arrival of cheap food from global to domestic market”, said RBA analysts.
In the coming months, it is expected that the growth in consumer prices will be continued, but inflation will still be suppressed. “Incentive for higher prices will come from strengthening of imported inflationary pressures, especially from commodity markets of crude oil and food, and partly due to the effects of the tax reform – increase of VAT rate on certain services and excise duties”, said RBA analysts.
However, they believe that wage growth and expectations of strengthening of domestic demand should not have a significant effect on inflation, especially in the context of a still weak labour market. “With a projected slight increase in oil prices and a slow recovery of demand, we expect that the average rise in consumer prices this year could be at the level of 1.3 percent”, concluded the analysts.
