Bulgaria’s July consumer prices edged down by 0.5 per cent month-on-month, after falling by 1.6 per cent in June, the National Statistics Institute (NSI) said on August 11.

Year-on-year, consumer price inflation slowed to 7.6 per cent in July from 8.2 per cent in June, the NSI said in a statement.

Cumulative inflation for the first seven months of the year was 2.4 per cent.

Food prices fell in July by 2.3 per cent month-on-month, following a 4.4 per cent monthly drop in June. Prices of fresh and frozen vegetables fell most in July, by 18.9 per cent, carrying over a downward trend from June.

Non-food prices edged up in July by 0.5 per cent month-on-month, after remaining unchanged in June. Prices of services rose in July by 0.7 per cent month-on-month, faster than the 0.2 per cent rise in June.

The Bulgarian National Bank (BNB) expects annual consumer price inflation to float around eight per cent during the second quarter of 2006 and then ease to about six per cent in the third quarter if fruit and vegetable prices fall in the summer and energy prices put no pressure on inflation.

The central bank has forecast end-year inflation of six per cent for 2006.

However, the government’s Agency for Economic Analyses and Forecasts (AEAF) raised in May its forecast for the end-year consumer price inflation to 6.41 per cent from its previous projection of 5.43 per cent, as rises in excise duties on cigarettes and alcohol introduced in the beginning of 2006, pushed consumer prices sharply higher in the first quarter.

Bulgaria ended 2005 with a five-year high annual consumer price inflation of 6.5 per cent, fuelled by rising global oil prices and an increase in food prices prompted by torrential rains in the summer that damaged farm produce and killed livestock.

The average annual inflation in 2005 was five per cent against 6.2 per cent for 2004.

Meeting the inflation criteria is expected to be Bulgaria’s toughest challenge for joining the euro zone in view of BNB’s restricted monetary policy.

The central bank of Bulgaria has been operating under a currency board arrangement pegging the lev to the euro since 1997 and the lack of monetary tools had left inflation the sole failure of the five EU-set criteria for euro zone entry.

Operating under a currency board arrangement, the central bank has no direct control over the inflation rates in the country.