site.btaAnalyst Sees Clear Trend of Inflation in Bulgaria Falling Closer to Eurozone Level

Analyst Sees Clear Trend of Inflation in Bulgaria Falling Closer to Eurozone Level
Analyst Sees Clear Trend of Inflation in Bulgaria Falling Closer to Eurozone Level
Photo: BTA/Hristo Stefanov

A fall in prices has been reported by the National Statistical Institute for the second month in a row. Monthly inflation in Bulgaria stood at 0.2% in May 2024 compared with 0.3% in April 2024. Annual inflation in May 2024 was 2.3%, based on the national methodology of calculation, or 2.7%, based on the harmonized index of consumer prices, which Eurostat applies to all EU member states, Institute for Market Economics (IME) chief economist Latchezar Bogdanov says in an analysis published on the IME website last Friday.

The data have led Bogdanov to draw several conclusions and to outline some trends. He says that, although prices have clearly settled over the last few months, by May Bulgaria was still far from meeting one of the principal eurozone entry requirements as its average annual inflation was 5.1%. In the countries whose inflation rates can potentially serve as reference values for determining the average annual inflation threshold in May, it ranges between 1.9% and 2.7%. Even if an admissible 1.5 percentage points are added, the level in Bulgara remains high.

Nonetheless, the analyst sees a clear trend of inflation in Bulgaria coming closer to the average eurozone level. Looking at the average annual rate, it is already 5.1% in Bulgaria and 3.4% in the eurozone, while in March 2024 the respective values were 14.1% and 8.8%. All this is a logical consequence of the strong inertia behind the average annual rate of inflation, which shows the dynamics of prices over a period of 12 straight months.

But if we consider the monthly values of annual inflation, the level in Bulgaria has been practically equal to the eurozone rate over the last two months, Bogdanov says. The great "divergence" began at the end of 2021, and the gap acquired significant proportions in the autumn of 2022, after which the rates started to converge again. In fact, in the first five months of 2024 inflation in the eurozone was 1.8% compared with just 0.6% (three times lower) in Bulgaria. To put it in a nutshell, the shock of 2022 was followed by normalization of the conduct of economic players, and the market narrowed the gap between Bulgaria and the other countries on the continent. The gap contracted steadily after January 2023, which means that it took Bulgaria 16 months to go back to the average rate of price change in the eurozone.

Inflation dynamics reflect the structure and the degree of openness of the national economies in Europe as well as the differences regarding the consumer baskets and incomes, the analysis goes. The cycle of sharp increase in inflation began with a shock to the prices of energy (electricity, natural gas and liquid fuels). Russia's war against Ukraine gave an added impetus to the process as it pushed up the prices of other raw materials and agricultural products. This was, in turn, carried over into the consumer prices of food and some other goods. Finally, there was a tangible appreciation of services, driven by the rising costs of raw materials and, quite notably, the impact of growing wages.

The easing of inflation occurred in the same order: energy depreciated first, food prices settled afterwards, and Bulgaria even recorded three months of falling food prices, leaving relatively high inflation only for services. As far as risks are concerned, labour costs in Bulgaria continue to grow three to four times faster (17% in March 2024 year on year) than in the larger and more developed economies of Western Europe, Bogdanov says.

/VE/

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By 01:25 on 20.07.2024 Today`s news

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