What is inflation?

What is inflation?

Published: 15/6/2021

Inflation is defined as a situation in an economy where there is an increase in the general level of prices for goods and services purchased by consumers over a given period of time. This leads to a reduction in the purchasing power of the domestic currency, which is why consumers have to pay more for the same basket of goods and services from one month to the next.

Inflation is measured by the consumer price index (CPI), which is used to compare current prices of goods and services with the prices in previous periods. For the purpose of measuring the inflation rate, the Croatian Bureau of Statistics monitors price changes in a basket comprising around 890 goods and services purchased by an average household in Croatia.

The consumer basket includes:

  • food, beverages and cigarettes,
  • energy,
  • industrial products, such as clothing and footwear, furniture, household appliances, cars, mobile phones,
  • various services related to transportation, communications, hotels and restaurants, recreation, etc.

Generally speaking, an average household in Croatia spends most of its income on food and energy (including car fuels), which account for more than 40% of expenditures, and spends much less on recreation and culture services, around 5% of total expenditures. A change (increase or decrease) in the prices of products accounting for a larger share of expenditures of an average household is given a higher weight in the calculation of the consumer price index and therefore has a greater influence on inflation trends.

For more details on inflation and inflation data for the euro area, see the interactive publication of the European Central Bank.