In the past few months the perceived inflation increased considerably, and the perceived inflation rate now exceeds 24%, which is much higher than the realized consumer inflation rate of 3.8% in October, the central bank (HNB) has said.

Based on data from a survey on consumer confidence, Lucija Fioretti, Karlo Kotarac and Davor Kunac of the Croatian National Bank’s (HNB) research department have analyzed changes in inflation perceptions in Croatia as well as the reasons for the recent divergence between inflation perceptions and the realised consumer inflation rate.

Since an unusually great divergence between inflation perceptions and the realized inflation rate may signal problems regarding the credibility of and confidence in official price statistics, the authors of the analysis have also compared the retail prices of a number of products published by the Croatian Bureau of Statistics (DZS) with microdata on retail prices in the main retail chains in the country.

The HNB says that the analysis indicates a high level of conformity between individual components of consumer inflation as calculated by the DZS and microdata on the prices of individual products available to the HNB.

The analysis notes that inflation perception, that is, the subjective consumer assessment of price growth is exceptionally important to monetary policy makers because it is closely related to the formation of expectations regarding future inflation, which, ultimately, are an important determinant of the future realised inflation.

In the past few months, inflation perception has grown strongly and now exceeds 24%, which is much higher than the realised inflation rate, which stood at 3.8% in October, the HNB analysts say.

They note that the average perceived inflation has been growing unusually fast in relation to the realized inflation, and that one should look at the movement of prices of certain products as the reason for the increased inflation perception.

They note that there is a strong asymmetry in the recent increase in consumer prices, with the prices of some crucial food products such as cooking oil, milk and dairy products, bread, potato and petrol having gone up unusually strongly. All of those products belong in the categories that affect perceived inflation the most.

The analysts stress, however, that despite the strong rise in the prices of some basic consumer basket products, the price increase is not widespread for the time being.