Bulgaria’s statistical authority, the National Statistics Institute (NSI), sent shockwaves in mid-September with the news inflation in August rose by 3.1 per cent month-on-month and 12 per cent in the 12 months to the end of August. Year-to-date, inflation came in at 7.5 per cent, the NSI report said.

The result has not only surpassed Government expectations for full-year inflation of 4.4 per cent, but also placed Bulgaria atop of the inflation chart in the European Union. Domestically, this figure translates to a seven-year high.

The NSI report sees foodstuffs as the category witnessing the highest inflation. Prices of eggs rose the most, by 27.2 per cent, potatoes by 26.1 per cent, edible oil 20.8 per cent, wheat by 14 per cent and bread by 12.4 per cent on the month.

While the Government sought immediate reasons in the succession of cold and dry weather spells, which cut agricultural harvests and, therefore, supply of main food items, some find the core of the problem in deterioration of macro-economic parameters.

In a report issued shortly after the NSI data release, the Scandinavian Danske Bank expressed concern that price acceleration was a sign that the country’s economy might be overheating. The bank saw soaring domestic demand as troublesome and called on the Government to take urgent political measures. Domestic demand picked up early this year as Bulgaria joined the EU and a number of European giants got unobstructed access to the local market, the bank’s analysts said.

On another note, the incomes of the population have picked up by 18 per cent since the start of the year, another reason for growing consumption.

Laxer spending has found its confirmation in another NSI report, which saw households spending more than they earned in July.

Household budgets ending in the red occurred for the first time in recent times this year. While per capita income in July was at 254.51 leva, spending was 322.35 leva, the NSI report said. During the same month a year ago, average income was 203.64 leva per capita while spending was 244.66 leva.

Finance Minister Plamen Oresharski sought to stave off inflation worries. At a conference dubbed “10 years of international monetary fund and challenges to euro adoption” in the week starting September 17, he said that the phenomenon was more a one-time occasion and its significance should not be exaggerated. He argued that domestic demand was not a factor to trigger overall price growth, though fiscal parameters should be contained at levels that should keep local demand at bay.

So did Economy and Energy Minister Petar Dimitrov, who ascribed acceleration in prices to seasonal issues, namely lavish tourist spending.

Government officials said that price increases in other categories were within normal limits. Rentals, for example, were up by 1.5 per cent, repair and home maintenance by 0.8 per cent, water supply by 0.5 per cent, utilities by 0.6 per cent, solid fuel by 1.4 per cent.

Prime Minister Sergei Stanishev linked high inflation with the country’s high economic growth. He said that Bulgaria came first in terms of industrial output growth in the EU. “Against the background of such high industrial production growth and soaring revenues, high inflation was not out of the ordinary,” Stanishev said.

He hinted that speculative price setting in a month within the summer season could have also contributed to August inflation levels.

Georgi Stoev, an analyst with analytical unit Industry Watch, urged not to seek reasons behind inflation in Bulgaria alone. He said that inflation worldwide could all but bypass Bulgaria’s open economy. The surge in prices of basic commodities worldwide, including crude oil, gas, chemicals, had their impact on local prices, Stoev said. He also ascribed the increase in agricultural prices to inflation of the basic currencies (euro, US dollar) rather than to momentous shocks in supply. Calculated in US dollars, foodstuffs prices rose by 30 per cent in the 12 months to August 2007.

Alexander Bozhkov, director of the Centre for Economic Development, took the reverse stance saying Bulgaria has been “not only geographically isolated but also pricewise”. He believes that the country will see price depreciations.

Whether August inflation data are a reason for concern or not will be known once inflation data for September and October are out.