Prime Minister Andrej Plenkovic said on Friday that he would ask the Economy and Sustainable Development Ministry to act and propose appropriate measures for possible cases of unjustified price increases.

Plenkovic made the statement in response to questions from the press during a visit to Istria County, noting that the government had frozen or capped prices of gas, electricity and oil products, thus preventing an increase in costs for households as well as the business sector, public institutions and local government units.

A recent analysis by the Finance Ministry showed that whenever the government reduced the VAT rate, prices of products unfortunately did not go down, bar some exceptions, he said.

If VAT rates are reduced from 25% to 13%, and from 13% to 5%, or in some cases to 0%, that is not a small amount, with the state giving up its part of the tax revenue to make it possible for citizens to feel the effect of lower prices in the supply chain, he said.

“It is not good if the government does its best to increase wages, including with the help of the tax reform, while prices are raised more than is justified,” he said, noting that COVID and the Russian aggression against Ukraine were external crises and shocks that had imposed the current context.

“But that requires full responsibility from all stakeholders, including controls and ultimately pressure on those who unjustifiably raise prices,” he said.

Asked if the latest increase in interest rates by the European Central Bank would reflect on citizens’ standard of living, economy and investments, the PM said that it was a reaction by the ECB launched more than a year ago to reduce inflation and demand.

The ECB on Thursday again raised the key interest rates by one quarter of a percentage point despite the weak economy, forecasting a high rate of core inflation, which does not include food and energy.

“In Croatia inflation has been falling for more than six months in a row, which is good, and I hope it will continue falling,” Plenkovic said, noting that year-on-year the economy grew by 2.8% in Q1 2023 and that he expected it to continue growing in Q2 and especially Q3, considering the tourist season and Croatia’s strengthened position following entry to the euro and Schengen areas.

“We have revised the growth rate from the initial 0.7% at the end of last year to 2.2%, and recently the HNB presented a more optimistic forecast. Judging by all trends, it seems growth will be larger than expected,” he said when asked if he feared that higher interest rates would negatively affect GDP.

The government in late April 2023 revised up its GDP growth forecast for this year to 2.2%, which is 1.5 pp more than the forecast presented at the end of last year.

In early June, Croatian National Bank Governor Boris Vujcic said that the central bank had revised its GDP growth forecast for this year from 1.5 to 2.9%.