As inflation has been on a record-breaking march all across Europe, the few statements of consolation from governmental institutions in Bulgaria seem to be that breath of relief that many covet but few believe.

Eurobarometer Spring 2008 survey shows that Bulgarians are among the most pessimistic within the EU in regard to inflation. The country ranks only after Slovenia, Latvia, Lithuania, Estonia and Austria in terms of pessimism with 51 per cent of Bulgarian respondents putting inflation atop of their macroeconomic concerns.

In a statement last week, Bulgaria's National Statistics Institute (NSI) has seen inflation soar to 15 per cent in the 12 months to May in what is a 10-year record. In May 1998, inflation reached 18.8 per cent.

Against that background, the governor of the Bulgarian National Bank (BNB), Ivan Iskrov, issued an upbeat statement saying the bulk of the double-digit inflation last year was mainly beefed up by the uptick in the latter months of 2007. Therefore, he expected that as the year progressed, inflation would slow and fit within the single digits.
Bulgaria's Economy and Energy Minister Petar Dimitrov seconded the statement on June 24.

The NSI data are testimony to the reverse though, according to experts. Year-on-year inflation in May 2008 was at 15 per cent, in April 14.6 per cent and in March 14.2 per cent.

These dynamics, however, has left the BNB unfazed, as the speed-up of consumer prices was a pan-European concern. In May 2008, Iskrov made clear Bulgaria's harmonised inflation was up 0.9 per cent on the month. In that it fares better than Luxembourg or Greece, whose month-on-month inflation was at one and 1.1 per cent, respectively, the company said.

In a revised BNB forecast for full year 2008, Ivan Iskrov said inflation would likely be in the 7-8 per cent range, up from 6.5 per cent to date. Despite the upward revision, the governor did not see the factors pulling inflation last year as troublesome this year round. Rather he saw this year's main inflation catalyst in the forthcoming utility price hike.

According to the latest call from Bulgaria's State Commission for Energy and Water Regulation, the prices of electricity and heating would rise, on average, by 13 per cent and 12.9 per cent, respectively, as of July 1 2008. Utility costs comprise of about 30 per cent of Bulgarians' consumer basket.

 "If structural reforms persist and the Government lives up to its commitment to keep salary growth under control, if there are surprises on the international oil markets and if food products are influenced positively by an expected good harvest, inflation would hardly be double-digit as last year," Iskrov said.

The governor also saw export growth outpacing inflation surge as a consolation factor. As another positive factor, he featured the decrease in the ratio of foreign debt to the gross domestic product (GDP), Iskrov added.

Amid the calls of optimism, on June 20, Bulgarian opposition sounded bells of alarm and called to undertake urgent measures to rein in soaring inflation. On behalf of the parliamentary group of rightist Democrats for Strong Bulgaria (DSB), party leader Ivan Kostov said the pro-inflationary factors were out of control, sparking a consumer prices hike that surpassed that in neighbouring states. DSB argued main inflation was higher than 15 per cent and goods comprising the low-income citizens' consumer baskets were now, by 20 per cent, more expensive.

For this reason, the Government should draw up measures to protect the revenues of pensioners and people living below the poverty line, as should stem the hike in regulated prices.

Another counter-inflation measure must, Kostov pointed out, was the cut in excise duties and VAT. In this way, Bulgarian companies would boost their competitiveness abroad.

The day before, Bulgaria's Prime Minister Sergei Stanishev said the Bulgarian Government had the high budget surplus as its main safeguard against inflation leaps. The Government also took due measures to safeguard against the leap in fuel prices.

The talk comes amid a similar backdrop in Europe. Eurozone inflation, in the 12 months to May, reached 3.7 per cent and, with underlying inflation triggers gathering momentum, it is likely to break the four per cent threshold.

May 2008 inflation is the Eurozone's highest in 16 years and has sparked fears of stagflation, low GDP growth coupled with high inflation, analysts said, quoted by the Financial Times.

The purchasing managers' index, a key indicator of economic dynamics, has also been at a five year low. As is private sector output.

According to the latest outlook of the International Monetary Fund (IMF), there was a 25 per cent chance global economic growth would go down below the three per cent threshold in what is tantamount to recession. The European Central Bank (ECB) was more upbeat, seeing global growth to remain on par with the previous year.