Montenegro’s inflation rate remained at 3.6% in June. The stability of the headline figure concealed a shift in its composition. Energy prices were subdued; services associated with tourism were not.
Consumer prices rose by 0.4% from May. Restaurants and accommodation became 3.3% more expensive, largely because accommodation services jumped by 6.3% in a single month. Health prices increased by 1.9%, while food and non-alcoholic beverages rose by 1%.
By contrast, transport prices fell by 0.2%. Housing, water, electricity, gas and other fuels declined by 0.1%, while clothing and footwear became 2.2% cheaper.
This is the sort of inflation that Montenegro finds difficult to control. As the summer season begins, a fixed supply of desirable rooms, restaurant tables and coastal services encounters a surge in foreign demand. Businesses raise prices because they can, rather than because imported energy has become more expensive.
Tourism inflation is good news for operators with pricing power. It is less agreeable for residents, who buy many of the same services but do not receive foreign tourists’ incomes. Coastal households can find themselves competing with visitors for accommodation, transport and everyday services.
Food inflation is more troubling still. A monthly rise of 1% in a large part of the consumer basket can quickly erase modest gains in wages. Average net earnings increased by 0.29% in June, but real net earnings fell by 0.1%.
Montenegro has fewer tools than most countries with which to respond. It uses the euro without belonging to the euro area and therefore cannot set its own interest rate or adjust its currency. Inflation policy relies instead on fiscal restraint, stronger competition and improvements to supply.
The June figures do not suggest another inflationary crisis. Several goods categories became cheaper and annual inflation did not accelerate. But bringing the rate down further may be harder than the initial retreat from the previous price shock.
Imported inflation can subside when global commodity prices fall. Service inflation driven by tourism, scarce capacity and domestic demand tends to linger.
