- Political stability
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- Macroeconomic developments
submited on 24.01.2011 in category Political stability | Monetary policy | Macroeconomic developments
The term "glocal", stemming from the terms "global" and "local", is usually used to describe a global event or process of local significance. This notion fits very well with the recent inflationary dynamics throughout the world and the dichotomy of mature economies such as the US, experiencing below-target inflation, and emerging economies, which, due to huge net capital inflows and accelerating demand, have felt intensifying inflationary pressures.
Europe is somewhat in the middle of this categorization, as the consumer price index in the Eurozone has recently exceeded the implied desired by the European Central Bank (ECB) rate of 2% annual change. Comparable to the pre-crisis times, Bulgaria is again within the economies, which report above EU-average inflation, reaching 4.4% annually as of end-December 2010, according to the change in the Harmonized Index of Consumer Prices, reported by Eurostat.
The drivers of inflation in Bulgaria are clearly global, reflecting the substantial price growth of internationally tradable goods, as the net inflow of foreign capital is still depressed (and will probably continue to stay at subpar levels in the quarters to come).
The increase of the prices of commodities is mostly attributable to:
1) the substantial monetary and fiscal stimuli put into action by most of the large industrial economies as a way to "fight" the recession, and
2) the growing consumer and investment demand in the catching-up economies in Asia and South America.
Within the last 12 months the prices of energy, food, and metals have increased by more than 20% year-over-year (please, check out the table). Most impressive has been the appreciation of industrial goods and agricultural commodities, whose price jumps exceeded 30% a year (the price of cotton went up by 120% in the same period).
There are a few important consequences of the rising global inflation for the Bulgarian economy:
1) While the inflation will boost the turnover in some domestic sectors such as energy and agriculture, it will also raise the value of imports and will have an overall negative impact on the economy.
2) Bulgaria will not be able to meet the inflation Maastricht criterion, probably for a long period of time, which will further decrease our chances of joining the Euro area. As of December 2010, Bulgaria exceeded the inflation requirement by 1.2 percentage points (please, check out the chart).
3) The rising prices of goods of basic necessity will probably have important political implications in the context of the forthcoming presidential elections.
| Commodity | Annual price change |
| Energy | 21% |
| Food | 27% |
| Metals | 30% |
| Industrial goods | 31% |
| Agricultural commodities | 35% |