Inflation in the eurozone has reached the target level of 2%, set by the European Central Bank (ECB). According to macroeconomist Vasil Karaivanov, this level is the result of many years of research and is considered optimal for the economy. “On the one hand, inflation reduces purchasing power, but its absence poses a risk of deflation, which is even more dangerous. At around 2%, businesses are encouraged to work, and consumers do not feel a significant loss of income“, Karaivanov emphasized to NOVA NEWS.
He also commented on the ECB's policy in recent years, related to raising interest rates: “The Central Bank can make credit more expensive and limit consumption, but it cannot stop inflation on its own. Ultimately, it is consumers and producers who determine its real level“. He added that fears in society also play a role: “In Bulgaria, people were scared that prices would rise, and that actually pushed them up“.
According to the economist, both psychological and structural factors are at work in the country - from consumer behavior to the growing pressure to raise wages. “When wages rise, entrepreneurs often respond by raising prices in order to maintain their profits. With the entry into the eurozone, hidden lev savings come out on the market - literally from drawers and under pillows“, he explained. According to him, this increased money supply further maintains high price levels.
Karaivanov noted that legislation has also played a role in accelerating inflation: “The adoption of a law on the introduction of the euro scared traders. They raised prices in advance to avoid sanctions in the future“. Thus, according to him, measures aimed at calming society have actually created additional pressure on the market.
With regard to the US, Karaivanov commented on the tension between President Donald Trump and the Federal Reserve, led by Jerome Powell. “We have an unprecedented situation - political pressure on the Central Bank. However, the Federal Reserve is waging a tough fight through high interest rates, which affects consumer and mortgage loans“. According to him, the tariffs imposed by Trump on European goods are also adding “fuel to the fire“ and keeping inflation in the US above the target of 2%.
“Once inflation appears, it is difficult to disappear and takes years to normalize“, concluded Karaivanov. According to him, regardless of whether we are talking about Europe or America, the tools to deal with high prices are limited and require a combination of economic policy, patience and balanced expectations in society.