Inflation in Montenegro is on the rise, with the real value of wages declining for four consecutive months, according to data from the Statistical Office Monstat on consumer price and wage trends.

The annual inflation rate in May reached 4.5 percent, marking the highest level in the past year. This was an increase from 3.8 percent in April and 3.2 percent in both March and February.

This inflation rate can be attributed to a 4.6 percent rise in meat prices, 11.9 percent in restaurant and cafe services, 20 percent in rent, 15 percent in pharmaceutical products, 19.1 percent for fruit, 14.9 percent in oils and fats, 24.1 percent in water supply, and 15.6 percent in home maintenance and repair services.

Prices for tobacco products saw a 6.1 percent increase due to higher excise duties, while hotel accommodation services rose by 7.2 percent following an increase in the VAT rate. Additionally, vehicle maintenance and repairs increased by 10 percent, coffee, tea, and cocoa went up by 20 percent, and the prices of newspapers and publications soared by 33.9 percent.

From an analysis of the products and services with the highest inflation rates, it appears that this increase was not imported but instead influenced by rising domestic prices related to services in cafes and restaurants, housing costs, water supply, hotel accommodations, and repair services for residences and vehicles.

Monstat assigns specific weights in per mille to each product and service based on its share of average household consumption. This weight is then multiplied by the percentage price increase of each product or service to determine its contribution to the overall inflation rate. The contributions from all products and services in the consumer basket are summed (whether positive or negative) to arrive at the final inflation percentage.

For instance, Monstat determines that meat has a weight of 88.4 per thousand, equating to 8.84 percent—indicating that the average family allocates 8.84 percent of its income to meat. The 4.6 percent rise in meat prices in May compared to last year results in a contribution of 0.4 percent to the overall 4.5 percent price increase.

Following meat, the next largest contributor to inflation was the increase in cafe and restaurant prices at 11.9 percent, as Monstat estimates that an average household spends 3.52 percent of its income on these services monthly, yielding a contribution of 0.39 percent to inflation.

While not all households incur rent expenses, Monstat needed to allocate costs across the average household to calculate the impact of these price increases on inflation. For example, if 10 percent of households rent and spend 20 percent of their income on rent, this equates to a 2 percent cost of the average household’s income.

With a 20 percent increase in rent prices compared to May of last year, driven by rising real estate values and influxes of foreign residents, it was determined that this increase contributes 0.39 percent to inflation. For actual tenants, the effects of this cost and inflation are more significant, resulting in a much higher personal inflation rate.

The prices of medicines and other pharmaceutical products have risen 15 percent over the year. Monstat’s formula shows that the average household spends 2.19 percent of its income on these items, contributing 0.32 percent to the inflation rate. Those with health concerns who spend comparatively more on medication will experience an even greater impact, leading to a more heightened perception of inflation.

The cost of water supply from municipal sources increased by an average of 24.1 percent, with some areas seeing rises of 50 to 100 percent while others showed no change. Monstat estimates that an average household spends 0.82 percent of its income on water, resulting in a contribution of just 0.2 percent to the inflation rate.

Fruit prices have increased by 19.1 percent, but given that the average household allocates 1.41 percent of its income to fruit, its impact on inflation stands at 0.28 percent. Oils and fats, which saw a 14.9 percent increase and account for 1.51 percent of household expenses, contribute 0.22 percent to the inflation rate.

Items in the coffee, cocoa, and tea category have grown by 20 percent; however, with the average family spending only 0.77 percent of its income here, their contribution to inflation is 0.14 percent.

In May, there was a 9.9 percent decrease in fuel prices, which make up 5.57 percent of household consumption, leading to a reduction in the inflation rate by 0.6. Thus, had fuel prices remained stable, the annual inflation rate would have been 5.1 percent instead of the reported 4.5 percent.

Shoe prices fell by 4.7 percent, with the average household spending 2.82 percent of its income on footwear, contributing to a 0.14 percent decline in the inflation rate.

Additionally, the reduction in the prices of solid fuels, telecommunications equipment, airline tickets, and vegetables has minimally affected the drop in inflation.

The real value of average earnings has been declining for four consecutive months

According to Monstat data, Montenegro has seen a real decline in average earnings every month from January to April.

The average net salary in January was 1,004 euros, down by eight euros or 0.8 percent compared to December of the previous year. With the monthly inflation rate recorded at 1.2 percent, the real value of salaries in January decreased by 2 percent.

In February, the average net salary dropped to 1,002 euros, a decrease of 0.2 percent from January. With inflation at 0.4 percent for that month, the real value of earnings decreased by 0.6 percent.

March saw a nominal increase of one euro or 0.1 percent in the average net salary, yet with monthly inflation at 0.3 percent, the real value still fell by 0.2 percent.

In April, the average salary rose by six euros to 1,009 euros, representing a 0.6 percent increase; however, with inflation at 0.8 percent, the real value once again decreased by 0.2 percent.

Inflation is expected to persist due to rising prices for baked goods and fuel.

June is anticipated to see further inflationary increases, as prices have already climbed in two significant product categories reflected in Monstat’s benchmarks.

Recently, the prices of basic bread and pastries increased by 7 to 10 percent. Given that this cereal product represents 6 percent of household consumption, it is anticipated to affect the inflation rate by 0.4 to 0.5 percent.

Oil prices on international markets surged by nearly 10 percent in the past week due to conflict escalation between Israel and Iran. However, because the price data from the oil derivatives exchange from June 13 is used to calculate fuel prices in Montenegro, this has resulted in a minor increase of one to two cents per liter. Notably, the prices on the derivatives exchange have not yet fully accounted for the recent changes on the crude oil market.

It is realistic to expect a significant rise in fuel prices in the next calculation on June 30th, particularly since fuel has a weight of 5.57 percent in inflation calculations.

Additionally, prices in the catering, hotel, and retail sectors typically increase in June ahead of the summer season, which is expected to further drive inflation.

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