March the 20th, 2025 – According to many, far too much attention is paid solely to Croatian tourism while industry and production struggle to keep their heads above the water.
As Glas Slavonije/The Voice of Slavonia/Drazen Katalinic writes, ongoing inflation is one of the biggest challenges to economic stability. Its constant presence in Croatia greatly reduces purchasing power, increases business costs and makes long-term planning more difficult. In order to curb it, it is necessary to harmonise monetary and fiscal policies, stimulate productivity and reduce dependence on imports.
This and more was discussed at length at the round table of the Croatian Society of Economists entitled “Fighting Inflation: What Steps Bring Economic Stability and Sustainable Growth?”.
The topic of inflation has completely occupied the public space for many months now, stated the moderator of the meeting, Katarina Bačić. It’s a syndrome of economic instability that is eroding the standard of living and the competitiveness of the domestic economy.
The President of the Croatian Society of Economists, Darko Tipurić, pointed out that domestic problems are fueling inflation in Croatia, which has cumulatively amounted to 30 percent in the last four years. He added that the public sector and wage growth in the public sector also have a pro-inflationary effect. Inflation affects those with the lowest incomes the most, while the tourism sector causes an increase in business costs, which ultimately spills over into an increase in the prices of end services.
“Fiscal policy must be responsible and focused on stability in order to avoid further inflationary pressures. We’ve relied exclusively on Croatian tourism and consumption for too long, while industry and production are shrinking, making the country much more vulnerable to external shocks. It’s now time to make decisive strategic moves. Those should primarily be reducing bureaucracy, tax relief for value creation, more flexible labour legislation and encouraging innovation,” explained Tipurić.
A lecture on the causes of inflation in Croatia, meaningfully titled “A Tale of Two Inflations”, was given by Vladimir Arčabić from the Faculty of Economics in Zagreb and an associate of the Croatian Academy of Sciences and Arts. He stated that from 2020 to 2022, Croatia had import inflation that depended on foreign factors, while from mid-2024, the country has had an “overheating” of the economy as the cause of inflation.
“Inflation across the Eurozone stabilised very quickly at 2%, in Croatia however it broke away from that trend and began to grow, on a monthly basis up to 5%. This “second” inflation was caused by domestic factors – a tight labour market, low unemployment, a large drop in purchasing power, and then wage growth. This wage growth pushed inflation upwards,” explained Arčabić, adding that price growth in Croatia affected competitiveness more quickly than in the Eurozone, and that because of that, the country is now at the level of competitiveness from the problematic year of 2008.
He also touched on the fact that not all prices grew equally, as food and drink prices grew the fastest, while prices for household equipment, transportation, energy, hotels and restaurants grew more slowly. Due to the rapid increase in food prices, purchasing power has been falling. If, for example, prices in hotels or restaurants had increased, people would’ve changed their spending habits and thus reduced inflation,” said Arčabić. He adds that the lowest wages, which are prone to consumption, grew the most. For those with such incomes, everything went to consumption, and it’s unlikely that such people managed to save or invest in venture capital.
According to him, there’s been no solid evidence that the introduction of the euro has fuelled inflation in Croatia, as prices had already started to rise before that, as they have across the EU. Although the increase in public sector wages accounts for a quarter of inflation, it doesn’t have such an impact on inflation because it doesn’t have such a large share in the total wage bill, with public sector wages rising by more than 30 percent last year, and private sector wages by 15 percent.
“Inflation is a disease of the economy and is an indicator of illness like a fever would be in a human being. The only problem with Croatian policies is that they lower the fever instead of curing the actual disease,” Ljubo Jurčić explained vividly. He said that wages need to grow more quickly, citing low wages as the fundamental problem of the Croatian economy.
Željko Lovrinčević from the Institute of Economics explained that the problems with inflation began with the announcements of Eurozone accession because everyone started playing with pricing. In the spring of 2022, prices rose further due to preparations for that summer’s tourist season, while the convergence of the kuna to the euro from January the 1st, 2023 had the least impact on prices. Only at the end of 2023 and the beginning of 2024 did employees appear as an actual factor in inflation. The fact that wage growth is the cause of inflation “is something central banks simply love to say,” said Lovrinčević.
