March 8, 2023 - The introduction of the euro in Croatia only affected the prices in January and February relatively mildly, by 0.4 percentage points. This is similar to the experiences of other countries that introduced the euro, shows the Preliminary analysis of the European Central Bank (ECB) and the Croatian National Bank (CNB).

As Index writes, the analysis was published in a blog post titled Has the Euro Changeover Caused Extra Inflation in Croatia?

The blog authors Matteo Falagiarda, Christine Gartner, Ivan Muzic, and Andreja Pufnik found that the January increase rates of the price of goods were in accordance with historical patterns in the past ten years. In contrast, service prices have on average, increased more than in the past years in January 2023. In February, however, none of the components of inflation deviated significantly from the historical average, the CNB reported today.

"65 percent of prices remained unchanged"

The authors point out that the official increase rate of the Harmonized Consumer Price Index in January compared to the previous month was only 0.3 percent. In February, it was 0.2 percent compared to January, classifying Croatia among the countries with the lowest monthly price increase rate in the Eurozone.

From the analysis of microdata on retail prices, it has been observed that the proportion of attractive prices (such as "0.99") decreased significantly, with about 98 percent in kuna to about 45 percent in euros, as a direct reflection of the fact that in January, prices have not changed much, so expressed in euros they were no longer at attractive levels (e.g. "0.99").

Specifically, as many as 65 percent of prices remained unchanged in January compared to December, and out of the remaining 35 percent - 25 percent of prices was reduced, as some retailers rounded off prices at lower levels when remodeling from kuna to euros, they say in the CNB.

The perception of inflation lowered after the introduction of the euro

The impact of introducing the euro on the perception of inflation and inflation expectations was also analysed. Contrary to the previous experiences of members of the eurozone, where the perception of inflation increased the most during the introduction of the euro, in Croatia, this perception decreased in January compared to December and remained stable in February, while inflation expectations have significantly reduced in both months.

The reduction of the perceived inflation was most influenced by the decrease in energy prices, which outweighed the possible negative effect of the introduction of the euro on the perception of inflation, they say in the Central Bank.

The authors conclude that despite the more challenging inflationary environment, the impact of the introduction of the euro on consumer prices in Croatia has so far been relatively gentle and in accordance with the experiences of other countries that have already introduced the euro as an official currency.

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February 2, 2023 - The first data on January inflation in Croatia indicate that the introduction of the euro, like in other countries, has not significantly impacted overall inflation, according to the Croatian National Bank (CNB).

"Movements in January suggest that the introduction of the euro in Croatia could have had a relatively mild impact on overall inflation, which is in line with the experience of other countries," the CNB's statement says. It is added that, following the experience of other countries, the increase in prices after the introduction of the euro is probably most apparent in the service industry. For a final assessment of the price increase after the introduction of the euro in Croatia, it is necessary to wait for detailed data for January and the next few months, according to the central bank, as reported by Index.

Prices are almost 13 percent higher than in January 2022

After Croatia's entry into the euro area, Eurostat and the State Statistical Office published today for the first time a rapid estimate of inflation in Croatia. According to these data, in January of this year, compared to January of last year, prices were higher by 12.7 percent on average and compared to December, they remained the same.

On a monthly level, compared to December last year, food, drinks, and tobacco are 1.3 percent more expensive, services were inflated by 1.1 percent, industrial non-food products without energy are estimated to have decreased in price by 2.1 percent, and power by one percent.

"The decrease in prices of raw materials also contributed to the slowdown in inflation."

CNB says that the slight slowdown in inflation in January is in line with their expectations based on the reduction in the prices of oil derivatives and assessments of the slowdown in the annual growth of food prices.

"The decrease in prices of raw materials on the world market, visible since the middle of last year, as well as the gradual elimination of the remaining bottlenecks in the supply chains, contributed to the slowdown of inflation. On the other hand, the significant effects of weakening economic activity are not yet visible," says the CNB.

Bearing in mind indications of easing of inflationary pressures at the global level, as well as statistical elements in terms of the favourable effect of the base period, in the continuation of 2023, they expect a further gradual slowdown of the annual inflation rate, although it will remain elevated for some time.

"However, it should not be ignored that the risks of future inflation outcomes being higher than projected are still considerable," the central bank says.

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October 30, 2021 - Croatian authorities such as the President, the PM, the FinMin and the HNB have recently commented on the process of euro introduction. Meanwhile, a collection of signatures is being carried out throughout the country to promote a euro introduction referendum to reaffirm the kuna as the official currency in Croatia.

Marko Milanović Litre, Member of Parliament of the Croatian Sovereignists and a representative of the Organizing Committee of the euro introduction referendum initiative Let's Protect the Croatian Kuna, said in Zagreb today that 157,000 signatures had been collected in five days and that the organizers were satisfied with the collection dynamics, reports Index.hr.

The initiative for the euro introduction referendum was launched by the Croatian Sovereignists, the Croatian Party of Rights, the Independent for Croatia, and the Generation of Renewal, and by November 7 they should collect 368,867 valid signatures of citizens. 

Signatures are collected at 250 locations throughout the country, and citizens thus declare whether they are in favor of the provision in the Constitution that the currency of the Republic of Croatia is the kuna, which is divided into one hundred lipa, and that the decision to change the currency is made by voters in a referendum.

"In the first five days, thanks to our volunteers, members of the Croatian Party of Rights, and Croatian Sovereignists, we managed to collect 157,000 signatures by 5 pm yesterday'', Milanović Litre told a news conference at the place where signatures are collected in Zagreb's central square.

He expressed satisfaction with the dynamics of collecting signatures.

"At the moment, we are satisfied with the dynamics of collecting signatures, especially after the first day and the media presence we received. It is much clearer to people what we stand for and what our goal is with this referendum initiative, which is greater democracy in Croatia", Milanović Litre said.

He assessed that the ruling party is ignorant of their initiative and stated that Croatia has the right to decide at what point it will accept the euro.

"They can repeat their mantras that it has already been decided in a referendum on joining the EU, which is not true. That is half the truth. Croatia has the right to decide when to adopt the euro. It must not be a decree of one person and his interests, but the decision of the Croatian people to decide on their own destiny", Milanović Litre said, among other things.

"We will fight for the kuna to remain because we are currently in the biggest economic crisis in human history and we cannot rush into a new monetary union that will have its own interests'', said Croatian Sovereign MP Milanović Litre.

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In conversation with Dnevnik Nova TV, Croatian Finance Minister Zdravko Marić revealed just how much taxpayers in Croatia had to pay out in guarantees for the country's ailing shipbuilding industry and the negative effects of the introduction of the euro as the country's official currency, a move which could happen in five years.

Will citizens and entrepreneurs feel economic growth? For example, will the non-taxable portion of salaries (take home pay) increase?

Entrepreneurs and citizens contribute the most to this economic growth. They create it on the one hand, and when it happens, as a result, we need to strive in the sense of measures, in order to raise the growth rates further.

To increase non-taxable parts of salaries?

It's still early to talk about the details. Salary growth has achieved positive effects. We should continue in that same direction. In terms of how much space there is [to move] on income tax, there's even more [space] in terms of the part of the non-taxable part itself. Remember the measure from December last year. More than 1.2 billion kuna was also paid by employers to their employees.

Is there any room to reduce excise duty on fuel?

You should also look at a comprehensive picture in the segment of indirect taxes. As a rule, there's always something that we have to take into special consideration because of the share of indirect taxes, Croatia is at the very top of the EU. But we should also take that into consideration in a broader context.

When you reduce fuel excise, you know for yourself that the price of everything drops.

Not as a rule always. To the last change in VAT, when we lowered taxes in our history, there's been no price reduction. But in the last couple of months, we've seen lower prices of fruit or meat, while fish and vegetables have even increased.

And in the hospitality industry by 13 percent?

This is the topic we'll also discuss.

Is the end of the issuing of shipbuilding guarantees?

This is unfortunately like in one of those ads when there's something extra at the end. I have to tell Croatian citizens that as of today, 4,420,000,000 kuna has been paid, and in the last couple of days the guarantees for the Jaružela ship, a great ship, have been protested, as well as two additional ones. Only 120.000.000 kuna is left. They're enormous sums of money. You can't be satisfied with the fact that we've paid for the construction of ships that haven't ever even been built as a finance minister or as a taxpayer.

What are the negative effects of the introduction of the euro?

Due to their very good knowledge and their history of experience with hyperinflation, devaluations before the introduction of the kuna, Croatian citizens say that in the first place, they're afraid of price increases. This needs to be taken seriously. It's a topic that doesn't happen overnight. There are several steps to take along that path. All measures must be taken to minimise any dangers and risks. And that all of the positive benefits manifest and come into effect as much as possible.

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Click here for the original article from Poslovni Dnevnik