Inflation is again above 5 percent, but at the same time, food prices are slightly cheaper in August, according to NSI data. The strongest growth is in transport, and in just one month, diesel has become more expensive by over 13 percent.
In the studio of "Hello, Bulgaria", financial journalist Stefan Antonov and the chief economist of the Institute for Market Economy Lachezar Bogdanov commented on what is actually driving prices up - fuel, services or something else?
According to Stefan Antonov, several factors simultaneously act on price dynamics. Among them, he pointed out the geopolitical situation and the uncertainty surrounding fuel supplies, as well as the budget deficits accumulated in recent years.
„We have a cocktail of factors that drive inflation. These are the conflict in the Middle East between the US and Iran, the uncertainty in fuel supplies, the policy of budget deficits in the last 4-5 years and the euro - the pressure and inflation of prices, which began in July of last year“, said Antonov.
Lachezar Bogdanov also highlighted the price of oil as one of the main factors in the last year. However, according to him, internal processes in the Bulgarian economy also have a serious impact.
„Last year, the price of oil was one of the leading factors. The internal ones are the policy of large budget deficits and bank lending, where we have a 20 percent growth in loans to households“, Bogdanov pointed out.
According to him, the increase in spending and money entering households leads to higher consumption, and hence to pressure on prices. “Spending leads to higher prices and an increase in imports. Bulgaria has had the highest real growth in consumption in the EU for a year and a half, because more money is entering households“, commented the IME's chief economist.
Bogdanov noted that the increase in food prices is relatively limited, but the dynamics are more significant in services. “Food prices have increased by 1% compared to August last year. The big increase in prices, apart from fuel, is in services - from medical examinations to restaurants and hotels. This is a result of increased consumption“, he said.
The Euro and Inflationary Pressure
The two also commented on the role of the introduction of the euro in price movements. According to Lachezar Bogdanov, the change from the lev to the single European currency coincided with already existing inflationary processes.
“The euro coincided with the situation. It is partly used purely psychologically, but the real ignition of this “fire“ comes from the policy of large budget deficits“, Bogdanov pointed out.
Stefan Antonov, for his part, drew attention to the long-term consequences of the fiscal policy being pursued. In his words, it is more important to stimulate supply, instead of only looking for ways to limit prices.
“A policy to stimulate supply - helping businesses reduce their costs, which will force businesses to lower their prices or raise them more slowly compared to the competition“, said the financial journalist.
He also criticized some of the government's measures aimed at the prices of basic goods. “The government made several mistakes - the "care basket" and the "fair price", which was supposed to be an internal instrument. The education reform is something key. If we want to increase incomes, we need to prepare more prepared personnel“, said Antonov.
What measures are possible?
According to Lachezar Bogdanov, there are two short-term options on the horizon to limit inflationary pressure.
“Two short-term solutions are on the horizon - one is a change in the behavior of commercial banks and a cooling of lending, which can be done either through awareness of the banks or through direct control by the central bank. The other solution is the new budget framework that we are waiting for after the elections“, he pointed out.
Stefan Antonov also commented on the so-called “basket of care“, according to him, such a measure would have a greater effect if it had been introduced earlier.
“Basket of care" "as one of the measures would have worked if it had been introduced in May last year, because the only factor would have been the currency change. Now we have more factors and businesses cannot be held responsible for the price increase," he said.
According to him, the beginning of bolder spending and lending can be traced back to the period around Bulgaria's entry into the waiting room of the eurozone.
“The courage to run these deficits came in 2020, when we entered the eurozone waiting room. This signaled that there was a lender of last resort and everyone started spending and lending much more boldly and risky“, commented Antonov.
“The big unknown for the entire European economy in the fall and winter remains the price of fuel“, said Lachezar Bogdanov.