Energy prices drive Croatian inflation, but the shock has not spread to food

Croatia is no longer the eurozone’s inflation leader, but households are still feeling a far sharper squeeze than the official figures suggest. The national consumer price index showed annual inflation of 4.1% in August, while the harmonized measure, which includes tourist spending and allows comparisons with other countries, was 3.7%.

Energy has been the main force pushing prices higher this year. The article links the pressure to a shock and disruption in oil transport following the U.S. intervention in Iran, as well as the Plenković government’s efforts to deregulate the market and withdraw pandemic-era price controls. Price freezes for electricity, gas and fuel have nevertheless kept household utility costs among the lowest in the eurozone.

The more reassuring figure concerns food. Croatia’s food basket cost just 0.1% more than a year earlier in August, suggesting that the energy shock has not yet spread substantially to groceries. Food prices fell 0.2% from July, although food has become more than 40% more expensive over five years. Croatia’s domestic food basket has also overtaken the European Union average, with eggs, cheese, bread, juices, mineral water and processed food among the more expensive items.

Housing prices and rents have surged as new construction slowed. Demand has also risen with the mass arrival of foreign workers, who need accommodation. Services were 7.2% more expensive than in August last year during the peak tourist season. Analysts at RBA warn that drought could increase imported food prices and domestic agricultural costs, affecting the wider food industry and retail sector. Food accounts for nearly one-third of the consumer basket.

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What is positive is the fact that Croatia’s inflation rate is moving closer month by month to