Croatia clashes with traders over post-euro 'wild' price hikes

By Antonio Bronic and Daria Sito-Sucic

ZAGREB (Reuters) - The Croatian government and businesses are at loggerheads as traders dismiss measures aimed at battling price hikes after the introduction of the euro by blaming inflation.

Costs rose as soon as Croatia replaced its kuna currency with the euro on Jan. 1, as traders rounded up prices in the new currency.

It prompted the government to take measures against traders on Jan. 5, warning them it would introduce fines, cancel energy subsidies or raise taxes unless they returned prices back to pre-euro levels.

The traders' association has dismissed the government's accusations, saying its members are not raising prices to make profit but rather due to the rising cost of raw materials and energy.

Croatia, with annual inflation recorded at 10.8%, reported one of the highest inflation rates in the EU last year.

Martin Evacic of the trade sector of the Croatian Association of Employers has said prices went up only on a small number of products.

"Prices in 2022 rose by 15% to 20%. They certainly did not rise during the conversion period," Evacic told Croatian media this month.

“I don't think this is a war between the government and traders, this is the pressure by the government and its need to do something to halt inflation," he said.

However Igor Vujovic, the president of the Croatian consumers' association, said consumers were facing prices rising by 5% to 20% a day, depending on the product. "Prices are getting wild," he added.

Neighbouring Slovenia, which was the first among eastern EU members to introduce the euro in 2007, also reported an increased inflation of 7%-8% after joining the euro zone but managed to lower it within three months.

After two weeks of increased controls, Croatian inspectors found that about 40% of businesses had unjustifiably hiked the prices and fined them 234,000 euros. The fine for companies is 26,000 euros and up to 1,090 euros for individual traders.

"Raising prices, overshadowing the introduction of the euro and contributing to inflation, it's an unfair practice and will not be allowed," Prime Minister Andrej Plenkovic said on Friday.

He said a number of traders had brought their prices down from the end of December.

Konzum and Lidl, the two leading food retail chains in Croatia, said in separate statements they had not raised prices after Jan. 1.

However, with consumers struggling with the cost of living, shoppers have also seen the difference.

"I have noticed the rise in food prices," said Zagreb resident Domagoj Bregant while shopping at the capital's food market. "This is a problem because food is really expensive relative to my current salary."

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Some opposition leaders have criticised the government for introducing the euro at a time of high inflation and the energy crisis triggered by the war in Ukraine, while not reforming its economy enough.

The government has long advocated the advantages of using the euro, saying it would strengthen the economy, improve the investment climate and make Croatia more resistant to external shocks.

(Additional reporting and writing by Daria Sito-Sucic in Sarajevo; Editing by Vin Shahrestani)