In its latest report on Croatia6, the Commission has released the assessment showing that both household and corporate debt are within prudential levels, though still above the levels suggested by the economic fundamentals. The risks are moderating, but remain relevant mainly related to high concentration of corporate debt, exposure to currency risk and potential solvency risk for companies due to the high debt burden relative to corporate financial assets and equity. 5  European Commission Country Report Bulgaria 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances. 6 European Commission Country Report Croatia 2019 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances. 10  Chart 12. Private debt to GDP by countries  Source: IMF Global debt database. Overall, private debt appears sustainable in most CESEE countries, though risks still remain. External environment remains challenging, making the region vulnerable to economic downturn, capital flows reversals and sharp tightening of financial conditions globally. In the event that monetary and financial conditions remain easy for too long, it may stimulate excessive risk-taking and build-up of financial stability risks. This calls for authorities in the region to maintain and further strengthen macro-prudential frameworks, if needed, to reduce vulnerabilities and enhance resilience to shocks. 11  *** The second issue that we tackle in this note is the phenomenon of “missing inflation” and the “wage–price puzzle”.
The contribution of the core inflation and food and energy prices to the overall inflation rate in the countries of the CESEE region in the last six years on average is generally balanced, with core inflation weighing slightly more. In the euro area, 76% of the average inflation dynamics was driven by the core inflation, and the rest by the more volatile prices. Compared to the 2002-2012 period, on average, in the last couple of years, the importance of core inflation for the dynamics of the headline inflation is much more pronounced, both in the region and the euro area. It either indicates that demand pressures and cost-push factors are becoming more prevalent, or that the pressures from the global commodities prices are becoming lesser. 13  Chart 15: CESEE and euro area headline inflation and core inflation developments 8.0  Chart 16: Contribution of core inflation and food and energy component to headline inflation in CESEE and Euro area (in p.p.) 6.0  CESEE inflation, %  7.0  5.0  CESEE core inflation, %  6.0  Euro area inflation, %  4.0  5.0  Euro area core inflation, %  3.0  4.0  2.0  3.0  1.0  2.0  0.0 2002-2008  1.0  2015-2019  2002-2008  Euro Area  2009-2014  2015-2019  CESEE  Core inflation, average (contribution to inflation, in p.p.) 2018  Source: IMF WEO Database, Eurostat and National Statistics.