Inflation in Croatia

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.