EURO ADOPTION AND INFLATION IN CROATIA. ANALYSIS AND CONCLUSIONS FOR BULGARIA

Abstract

This study analyzes the inflationary effect of the euro adoption in Croatia and its consequences for Bulgaria. Following Croatia’s accession to the Eurozone on January 1, 2023, significant price increases were recorded, particularly in the food, beverage, and service sectors, with some categories experiencing price hikes of up to 50%. Inflationary effects were observed even before the official introduction of the euro, as businesses preemptively adjusted prices. A comparative analysis with inflation trends in the EU and the Eurozone confirms that the euro significantly contributed to inflationary growth in Croatia. After adopting the euro, prices in Croatia began to rise faster than those in Bulgaria, with a particularly strong increase in the service sector. The study’s comparative analysis finds that the inflationary burden of the euro in Croatia reached 2.63 percentage points in the general index, 3.52 percentage points in core inflation, and 9.03 percentage points in the service sector, compared to Bulgaria's inflation trend. If Bulgaria had adopted the euro at the same time, the estimated loss of purchasing power would range between 1 and 6.7 billion BGN. Institutional weaknesses and market imperfections in Bulgaria could lead to even stronger inflationary effects. The study also raises questions about the sustainability of Croatia’s inflation control measures and the potential long-term consequences of euro adoption.