Inflation in Croatia: The Role of Fiscal Policy

Author: Mariarosaria Comunale

After a period of sharp deceleration, inflation in Croatia has inched up since late 2024 to about 4–4½ percent year-on-year lately, among the highest in the euro area.

Volume/Issue: Volume 2025 Issue 158

Publication date: December 2025

ISBN: 9798229034609

$15.00

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Topics covered in this book

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Inflation , Labor , Economics- Macroeconomics , Public Finance , Croatia , Inflation , Fiscal Policy , Public Wages , Bayesian VAR , Euro Area , Price Dynamics , Macroeconomic Shocks , IMF country , inflation dynamics , inflation in Croatia , IMF staff , issues paper , Wages , Fiscal stance , Wage adjustments , Europe

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Summary

After a period of sharp deceleration, inflation in Croatia has inched up since late 2024 to about 4–4½ percent year-on-year lately, among the highest in the euro area. As monetary policy is set at the euro zone level, this paper aims to quantify how fiscal policy has affected inflation in Croatia via the use of a Bayesian VAR model. Results show that fiscal policy, particularly the public wage increase implemented in 2024, explained more than 40 percent of the endogenous variations in inflation in recent quarters.