April the 17th, 2026 – A new inflationary shock is on the cards for Croatia, and the question is how long it will last given that March levels exceeded preliminary estimates.
As Poslovni Dnevnik/Ana Blaskovic writes, the refinement of the March inflation calculation showed that price increases across the Eurozone managed to exceed preliminary estimates. Predictably, this was “god-fathered” by energy, as its supply shock began being incorporated into a whole range of other prices. As such, last month, the general price level measured by the harmonised index (HIPC) across the Eurozone accelerated to 2.6% on average, compared to the initial estimate of 2.6%.
croatia remains the record holder of a record nobody wants
Croatian inflation, however, remained at the original 4.6%, but this is little consolation considering that the jump in just one single month reached a full 1%, from 3.8% back in February. With such elapsed time, Croatia remains the deeply unfortunate record holder among the 21 Eurozone member states, with only Romania (9%) having a greater impact on the standard of living, but that country is not yet a member of the Eurozone.
What exactly has changed in the calculations in the past two weeks?
Energy – the impact of which was even more pronounced than the initial estimates. Energy prices rose 5.1% year-on-year last month, the strongest increase since February 2023. Until February, energy prices had been on a downward trajectory – they were 3.1% cheaper that month and a whole 4% cheaper in January compared to the same months of the previous year. Fresh food also saw stronger growth in March, reaching 4.2%. The monthly figures are even more illustrative: average inflation across the Eurozone accelerated by 1.3%, the highest since back in October 2022. The main culprit, unsurprisingly, is energy prices, which rose by as much as 7% in a single month (0.2% higher than initially expected), the fastest since the outbreak of the war in Ukraine.
the middle eastern crisis and a new inflationary shock for croatia
What the outcome of the conflict over in the Middle East will be, whether the world and Europe will sink into a new major crisis with it, will all depend on the passage of the Strait of Hormuz. It is the key artery of oil and gas traffic (and surrounding refinery facilities), and currently represents a complete and utter unknown.
“Judging by the current level of energy prices and their relative change, the energy shock is still of weaker intensity than the one we saw back in 2022. In addition, the agreed two-week ceasefire in April led to a drop in oil and gas prices, so even with today’s price increase, we’re very close to the levels predicted by the baseline scenario of the European Central Bank’s projection from March,” stated CNB Governor Boris Vujčić at the recent Lider conference. The outgoing governor, for now, remains relatively optimistic, emphasising that the impact on the energy trade balance could be smaller than it was back in 2022.
the most unfavourable scenario (by far…)
He also underlined the “mitigating circumstances” – the current energy shock comes with weaker growth, inflation closer to the target and less pressure from the labour market than four years ago when inflation across Europe went totally off the rails. This range reduces the risks of secondary effects on inflation, and Europe’s energy system is more resilient today due to the diversification of sources than then. “However, we need to be careful and prepared for the realisation of negative geopolitical risks,” stated Vujčić.
The first negative effects on Croatian growth are already noticeable on the ground, both through consumer and business confidence indices, and the activities of key sectors. However, in the baseline scenario, the central bank still expects rather solid 2.6% growth and 4.6% inflation this year. In a much more unfavourable scenario, GDP growth would slow to 2.1% with 5.6% inflation. Even in an extremely unfavourable scenario, the Croatian economy should still not plunge entirely into recession: growth would remain at 1.8%, but average annual inflation would rise to a mortifying 7%.
Employers, on the other hand, are a little less optimistic. They expect solid growth rates (2.5%) which is among the highest in the entire EU – something to which Croatia is far from a stranger. That said, they’re still warning of the danger of inflation being further ignited by Banski dvori. They have assessed the government’s interventions in electricity and derivatives prices as too broad and somewhat poorly targeted. Therefore, they believe, it is necessary to resolutely resist pressures on the growth of the public sector wage bill and to adjust social measures in a targeted manner so that additional fiscal stimulus does not add fuel to the fire of inflation, which will, in all likelihood, once again be a burning issue in the coming months.
