Impact of euro changeover on prices in Croatia relatively mild

NEWS 07.03.202316:02 0 komentara
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The euro adoption in Croatia on January 1 this year has contributed relatively mildly to inflation and the changeover-related inflation in January and February was 0.4 percentage points, according to an analysis made by the European Central Bank (HNB) and the Croatian Central Bank (HNB). Pročitaj više

The findings of the preliminary analysis, published in the blog headlined “Has the euro changeover caused extra inflation in Croatia?”, show that the 0.4 percentage point increase is similar to the experience of other countries that switched to the euro before Croatia.

Preliminary evidence presented in the ECB blog post shows that the kuna-euro changeover has so far had relatively little impact on Croatian consumer prices and price perceptions, said the authors of the blog Matteo Falagiarda, Christine Gartner, Ivan Muzic and Andreja Pufnik.

January’s inflation rates of goods’ prices were in line with historical patterns over the last 10 years.

On the other hand, prices of services rose above the 10-year average.

“Looking more closely, the Harmonised Index of Consumer Prices (HICP) for January and February 2023 indicates that inflation in Croatia continued its moderating trend in annual terms, decreasing from 12.7% in December 2022 to 12.5% in January 2023 and 11.7% in February 2023. Month-on-month inflation was 0.3% in January 2023, which is less than in some other euro area countries.”

“In February 2023, the month-on-month growth of Croatian HICP was 0.2%, one of the lowest increases across euro area countries. In addition, all HICP components, including services, displayed a month-on-month growth in line with past regularities.”

All in all, the impact on consumer prices and price perceptions in Croatia coming on top of the general inflation trend seems to have been contained so far.

Impact of changeover on price perceptions

During previous euro changeovers, consumers often perceived inflation to have increased, diverging substantially from developments in measured and expected inflation.

The perception of increasing prices is fuelled by consumers’ habit of emphasising price developments in frequently purchased goods and services, a possible unfamiliarity with the new currency and media reporting on rising prices. This perception gap was in the past only a temporary phenomenon with no spill-overs to the evolution of real consumption, wage formation or inflation expectations.

In Croatia, perceived inflation decreased in January and stabilised in February 2023, in line with the moderation in HICP inflation.

At the same time, consumers foresee a significant decline in the 12-month-ahead inflation, confirming that inflation expectations remain anchored and unaffected by the changeover. This first evidence suggests that a perception gap in Croatia has so far not emerged, meaning that it is important to continue pursuing a proper communication strategy on the matter.

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