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The rise in euro area core inflation remains persistent

rise euro area core inflation remains persistent
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от БНТ
15:23, 01.08.2023
Bulgaria

Lending in the country remains high amid another ECB interest rate hike. The central bank's goal is to lower inflation to 2%, but forecasts are for it to remain high for a long period of time, Governor Christine Lagarde said.

Inflation in both Europe and Bulgaria is slowing down and there is a reason for that, financial experts say.

"The shock caused by the war in Ukraine is over. By methodology, the most common approach for measuring inflation is a 12-month period and with current energy prices I expect inflation to moderate," said Alexander Alexandrov, a market analyst.

The drop in annual inflation sounds like good news, but underlying inflation, which excludes food and energy and is the basis on which the ECB decides on interest rate changes, has risen.

"It will all depend on how inflation evolves, as it has shown a resilience that both market experts and central bankers did not expect to happen," said Alexander Alexandrov, a market analyst.

In Bulgaria, although bank interest rates have so far remained unchanged and BNB data show an acceleration in lending. This month, households have taken out loans worth more than BGN 1 billion and BGN 200 million. - A record for the last two and a half years.

The balance between waiting on interest rates and dealing with high inflation in Europe has to be calculated carefully because of low economic growth, the risk of recession and deteriorating public finances in some eurozone countries.

"There are some countries that are heavily indebted, which introduces even more serious risks, but inflation is nonetheless the most destructive economic phenomenon and certainly the battle to sustainably lower inflation must continue even at the cost of cooling the economy," said Dr Vladimir Sirkarov, economist.

On average, the interest rate on consumer loans in the country is just over 8%, and on mortgage loans - 2.6%. However, a noticeable rise is expected to be felt as early as the end of the year.

"The actions of the BNB also show that there will be a struggle to cool the economy in Bulgaria, especially as regards lending and on the lev mortgage loans and loans in general - there will be increases," said Dr. Vladimir Sirkarov, economist.

It will become clear in September whether there will be a final new hike by the ECB.

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