The Croatian Employers' Association (HUP), commenting on the latest data on inflation on Friday, said that companies in all sectors of the economy would need to adjust their business if a decline in economic activity and recession were to be averted.

The Croatian Bureau of Statistics (DZS) said on Friday that the prices of consumer goods and services, measured by the Consumer Price Index, increased by 0.1% in August 2022 from the previous month and by 12.3% from August 2021. This is the second month in a row that a record annual inflation rate has been registered.

HUP noted that the rise in consumer prices in August was partly alleviated by the capping of fuel prices for personal vehicles, adding that the government’s autumn package of aid measures to protect households and businesses from price hikes should work in the months to come.

Employers expect the annual growth rate of consumer prices to be in double-digit territory and expect a more pronounced slowdown only in the second half of next year.

“That means that business operations will need to be adjusted in all sectors of the economy in the coming period if a decline in economic activity and a resulting recession are to be averted,” HUP said.

HUP said that the government’s aid package to help cushion the impact of increased energy prices was welcome, albeit insufficient for many sectors of the economy.

Only a small portion of the package is aimed at enterprises, and we continue to closely monitor the impact of the measure to limit the prices of basic foodstuffs, which might cause disruptions to the markets, employers said.

HUP Director-General Irena Weber highlighted the need for coordinated action by the government and the business community to alleviate as much as possible the price pressure on the economy and possible adverse consequences for growth and living standards.

“Because of the rise in input costs, notably the enormous rise in energy prices, most companies will perform worse than expected at the start of the year,” Weber said.

Citing an HUP survey, she said that as a result quite a few companies would give up on their planned investments this year, while some feared dismissals or even closures because already now they were generating huge losses.

“Still, given the resilience demonstrated during the COVID-19 crisis and the speedy recovery after it, there are high expectations that the business sector, with an adequate reaction from the government, will show its strength in this situation as well and stay on the upward growth trajectory,” Weber said.