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Domestic inflation in Bulgaria slowly converges with the rate in the Euro-zone but 2006 is expected to bring about upward pressure on prices.
submited on 25.10.2005 in category Fiscal affairs | Monetary policy | Macroeconomic developments
submited on 25.10.2005 in category Fiscal affairs | Monetary policy | Macroeconomic developments
Since January 2005 we observe a deceleration of Bulgaria’s annual average CPI – from 5.9% to 4.6% in September. Given the slight growth of the Euro-zone inflation rate after June (from 2.0 to 2.5%), the trend towards price change convergence seems stable.
At the same time, short-term factors in Bulgarian economy will exert a serious upward pressure on domestic price index. Despite the currency board arrangement we now experience an “import” of monetary policy from the low-interest Euro-area with the result of fast expanding domestic credit. High oil prices are still to induce cost increases for local industries. These developments coincide with the timing of certain fiscal policy measures that will bring about higher duties on fuels, cigarettes and alcohol. The quasi-independent utility regulators will most likely fix higher prices of energy (natural gas, heating and electricity). According to Industry Watch forecast, the combined effect of these factors will be a 3 percentage point higher-than-otherwise consumer price index for 2006.
If the trend for stabilization of real estate prices is preserved, this would mean a lower-than-present demand for new housing, and therefore construction-related services and industries will suffer a pressure to reduce prices.
At the same time, short-term factors in Bulgarian economy will exert a serious upward pressure on domestic price index. Despite the currency board arrangement we now experience an “import” of monetary policy from the low-interest Euro-area with the result of fast expanding domestic credit. High oil prices are still to induce cost increases for local industries. These developments coincide with the timing of certain fiscal policy measures that will bring about higher duties on fuels, cigarettes and alcohol. The quasi-independent utility regulators will most likely fix higher prices of energy (natural gas, heating and electricity). According to Industry Watch forecast, the combined effect of these factors will be a 3 percentage point higher-than-otherwise consumer price index for 2006.
If the trend for stabilization of real estate prices is preserved, this would mean a lower-than-present demand for new housing, and therefore construction-related services and industries will suffer a pressure to reduce prices.
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