Economists predict a rise in inflation in Bulgaria

Inflation is expected to rise again due to the recent price increases in Bulgaria, economists have forecasted. This will give the country a window of two to three months, at best, to request special reports from the European Commission and the European Central Bank for potential entry into the Eurozone next year. It remains unclear how long Bulgaria will be able to meet another critical criterion for Eurozone membership—maintaining a budget deficit of up to 3% of GDP.

The increase in electricity prices for households, water, and bread since the start of the year will have a direct impact on inflation.

"This year started with price hikes in key areas that directly affect inflation. These price increases are reflected in every consumer basket, whether small or large," said Lyubomir Datsov, a member of the Fiscal Council of Bulgaria.

The initial increase in inflation is expected to be minimal, ranging between 0.1 and 0.2 percentage points.

"Inflation in Bulgaria is traditionally lower in January and February and tends to rise during the summer months, as we have seen in recent years with price increases in hotels, restaurants, and the cultural sector," explained Adrian Nikolov from the Institute for Market Economics.

A further price increase is expected in May, which could complicate Bulgaria’s accession to the Eurozone.

"The country is likely to move away from the inflation criterion by May or June, which means that we should request a report for Eurozone membership as soon as we meet the criteria in order to be assessed well," said Adrian Nikolov.

"The only chance to meet the inflation criterion is if similar price increases occur in other countries we are measured against," added Lyubomir Datsov.

Inflation is also expected to rise due to the increase in wages.

"The problem is that our fiscal policy has not aligned with the monetary policy led by the Central Bank to curb inflation," Datsov noted.

"The budget proposed by the Ministry of Finance contains several inflationary factors. One is the increase in the minimum wage, which is not directly related to the budget but is an accompanying factor. Another is the significant wage increases in the public sector," added Adrian Nikolov.

Besides the risk of not meeting the inflation criterion for Eurozone membership, another criterion—budget deficit—is also under threat.

"If this budget is passed and the spending is executed, the deficit will be around 6%, which means we not only have an issue with the inflation criterion but also with the budget deficit," Datsov stated.

Tomorrow, the review of the state budget, the health insurance fund budget, and the state social security budget will begin in the National Assembly. However, before that, an extension law is expected to be passed to ensure that there will be no issues with social payments until the 2025 budget is adopted.

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