Croatia's consumer prices rose 0.7% y/y in June, decelerating from 1.1% y/y in May, data from the statistics office showed on July 17.

In December, Croatian consumer prices posted the first annual increase of 0.2% since June 2015. CPI deflation in Croatia bottomed out with a 1.8% annual decline in May 2016 and consumer prices were on an upward trend until March 2017 thanks to rising oil prices and strengthening private consumption backed by the favourable tourism season in summer 2016. April’s 1.4% annual inflation figure was the highest sine August 2013’s 1.9% while May figure was lowest since December.

On a monthly basis, Croatia’s consumer prices declined by 0.5% in June, following a 0.2% decline in May. Food and non-alcoholic beverage prices, which have the largest weight in the consumer basket, posted a decline of 0.1% on a monthly basis in June. Prices of housing, water, electricity, gas and other fuels, which have the second largest weight in the consumer basket, remained unchanged in the month, while transport charges, with the third largest weight in the basket, posted a decline of 0.4% on a monthly basis. 

Clothing prices, which fell 4.7% m/m in June, contributed to the headline monthly CPI deflation with -0.3%, the highest contribution in the month.

Producer prices of building materials in Croatia rose 1.3% y/y in June, after rising 1.2% y/y in May. Annual industrial producer price inflation in Croatia slowed down further to 0.3% y/y in June, the lowest level since December.

Croatian consumer prices out-performed expectations in 2016. The Croatian government expected consumer prices to resume growth in 2016 and forecast annual inflation of 0.1%. The International Monetary Fund (IMF) forecast annual deflation of 1% for 2016.

The Croatian Central Bank (HNB) forecasts that annual inflation will increase to 1.6% in 2017. In February, the European Commission hiked its average inflation forecast for 2017 to 1.7%, comparing favourably with the -0.9% in the Spring Forecast.

In April, the IMF also revised its 2017 average CPI inflation forecast to 1.1% from 0.8% in October. The fund forecasts CPI inflation will rise to 0.8% at end-2017.

The three–year disinflation period is behind Croatia, and average 2017 CPI inflation might reach 1.9% y/y in 2017, according to Raiffeisen Bank.