Croatia's consumer prices rose 1.1% y/y in May, decelerating from a peak point of 1.4% increase in April, according to data from the statistics office.

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 have been 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%.

On a monthly basis, Croatia’s consumer prices declined by 0.2% in May following a 0.5% increase in April. 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 May. Prices of housing, water, electricity, gas and other fuels, which have the second largest weight in the consumer basket, rose 0.2% m/m in the month, while transport charges, with the third largest weight in the basket, posted the highest rise of 0.7% on a monthly basis. 

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.

Producer prices of building materials in Croatia rose 1.2% y/y in May, after rising 0.99% y/y in April. The producer building material price index turned to posting annual growths in September and annual inflations have continued since then. Building material prices inflation slowed down to 0.10% y/y in January but showed an escalation for the following four months.

Croatia’s industrial producer prices turned to growth in December, three months later compared to building material prices, and they remained in positive territory during the first five months of the year. Annual industrial producer price inflation in Croatia slowed down from 2.9% y/y in April to 1.8% y/y in May.

Despite the improving trend in 2017, industrial producer price inflation in Croatia remains behind the EU average, which increased to 4.8% y/y in April from 4.6% a month ago.

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.