bad economic policies
Economic Slope Becomes Even More Rapid
Annual inflation rate in Croatia earlier this month has increased on to 8.4 percent, the Central Bureau of Statistics has announced a few days before. Most have increased prices of food products, 14.7 percent, which make up 29.13 percent of the index. In relation to the preceding month, prices have risen 0.1 percent. Most are on average increased fuel and petroleum derivatives – 6.8 percent and prices of housing, energy, water, gas and other fuels that have grown 4.1 percent. If February is excluded, in which at the monthly level was on record a mild drop in consumer prices, in July was 0.1 percent, the lowest monthly growth rate this year (the other months, prices have grown by rates of 0.6 to 1.1 per cent). However, at the annual level is the continued growth of inflation, considering that in April amounted to 5.7 percent, in May 6.4 percent, in June, 7.6 percent, and in July 8.4 percent.
Inflation is also visible on the price of union basket. According to the Alliance of independent trade unions, most were growing costs nourishment – 322 kuna in a year are now amount of 2350 kuna. In order to pay for basic life expenses, four-member Croatian family last month needed 528.49 kuna more than in July last year. The growth of living costs, however, was not followed with the growth of average wages that are in the year increased to 237 kuna.
The Croatian National Bank (HNB) expects a similar rate of inflation in August, according to estimates of Zeljko Rohatinski, if there’ll be no more new price shocks and chain reactions through an attempt indexation, inflation could slow by the end of the year to 6.5 percent. According to his words, if this optimistic scenario of slowing inflation will not be realized, the consequences could be serious problems throughout the system. A strong exchange rate appreciation could be more than five percent on annual basis. At the same time, interest would be to keep at high inflation inevitably had to grow, and citizens began to draw savings from banks because their earnings would be taken by inflation. “There’s a need of slowing inflation and therefore there is no alternative and therefore should be taken all that economic policy is available to control it“, said Rohatinski. As he said, HNB will, if necessary, taper banks further sales growth and reduce the repo business of central bank, will further appreciation course if necessary, and further limiting the amount of money in circulation.
Monetary mass in the course of this year increased by 2.3 percent, while its growth has amounted last year to 19.3 percent, because of anti-inflation actions by HNB. The governor in talks with the media has pointed out that he’s over in any way warning Croatian government of the danger of inflation. Specifically, he has on several occasions during the past and the beginning of this year clearly said what actions could the state could make, and in his analysis of inflation he pointed out that the state and higher consumption was the main generator of inflation, after which Prime Minister Ivo Sanader and Minister Suker clearly send out a message to him not to interfere in their work.
Ruling HDZ bears a grudge against governor because he has short before last year parliamentary elections, warned of a coming high inflation, which has not, of course, concurred with pre-election promises from both left and right political spectrum. After formation of the Government, conflict continued on the same topic. Parliament club HDZ has a few months ago vehemently accused HNB for hindering economic development and stimulate the growth of interest, and with bad monetary politics and fixing unrealistic of kuna has favored importers and damaged the domestic economy. Club HDZ has then publicly announced that the Government has done everything in its domain to maintain the macroeconomic stability of the country, while HNB has not done the same, criticizing HNB because of the high rate of mandatory foreign exchange reserves, and on parliamentary tribune was stated an evaluation that «on the Croatian capital market could promptly be found more than 20 billion kuna when HNB rate required reserves decreased by 50 percent.
Then overly optimistic indications full of political enthusiasm about the annual deficit between 2.3 and 2.4 per cent, growth of 4 to 4.5 percent, and inflation from 5.1 to 5.2 percent, run against the cliffs of depressing economic reality. Measures that were at the beginning of this year suggested to the government by HNB, which have agitated the spirits of economic and political nomenclature, after the publication of data on the 8.4 percent inflation in July, act now, half a year later, mature and responsibly. Pink notices have been deposed by explanations of general practice: all countries over the world have inflation so does Croatia, the price of oil has increased, the prices of food also. However, although the prices of oil and food on the world market in the meantime have stabilized, this has not stopped inflation trends in Croatia. To this situation favors a number of factors – from chronically excessive government spending and announced the sale of INA to trend growth in food price growth over the input costs of those companies that receive government incentives. If it’s for the sake of short-term buying social peace, allowed indexing of wages growth with the rate of inflation, and the state has already partially done it in the biggest state companies and employees in state administration, economic ascent will become much more rapid but up until now. It probably will again need to 7, 8 months for someone to recognize and explain to Croatian population the new ‘objective circumstances’ which were performed in the meantime.
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