March year-on-year inflation in Bulgaria hit a 10-year high despite the soothing statements from the Government and international financial institutions that price growth would be tamed this year.
Consumer prices rose by 14.2 per cent on the year at end-March, according to National Statistical Institute data released on April 14. The dynamics, though, cooled off in monthly terms.
In March alone, inflation was 0.8 per cent, down from 1.1 per cent in February and 1.4 per cent in January, over the pickup in foodstuffs - mainly fruit, vegetables and poultry - and consumer goods prices.
Broken down by categories, food prices were up 1.0 per cent on the month. Services prices added 0.4 per cent against February, whereas prices of non-food goods went up by 0.8 per cent.
Harmonised inflation, the consumer price index calculated by European Union methodology to compare prices with the rest of the bloc, was at 0.9 per cent on the month and 13.2 per cent on the year.
Even if inflation continues climbing at the slower March rate, the chances that the 2008 Government forecast for full-year inflation of 6.9 per cent is met look remote, particularly in light of the forthcoming hike of all utility prices expected later this year, analysts said. Electricity, heating and water bills account for one sixth of the monthly expenditure of an average Bulgarian household.
The news comes a week after the International Monetary Fund (IMF) and local economic think-tanks, such as Industry Watch, released upbeat macroeconomic forecasts. While the IMF projected inflation at 7.5 per cent for 2008, the Industry Watch poll of six top Bulgarian economists put it at 9.6 per cent.
Foreign analysts warned, though, that inflation could go off leash unless the country tamed credit growth, which is still growing by about 60 per cent in annual terms, and the double-digit increase of household income.
Bulgarias inflation and current account deficit have long been on the economic risk watch list of international analysts. The IMF conditioned its soft-landing and sharp-slowdown scenarios for Bulgarias economy mainly on the dynamics of these two parameters.
Bad news about the two macroeconomic indicators arrived simultaneously. Bulgarian National Bank announced on April 15 that the current account deficit soared 17.3 per cent on the year to 1.28 billion leva in the first two months of the year. The figure equals 3.9 per cent of 2008 target gross domestic product (GDP).
Trade deficit for that period came in at 1.21 billion leva (3.7 per cent of forecast GDP), an increase from 1.05 billion leva the year before.
The news about soaring inflation came simultaneously with similar reports from countries, which the European Commission, the IMF and the World Bank, have put in the bracket of economies threatened by overheating. These economies are seen as particularly vulnerable to price spikes of basic commodities - such as crude oil and gas - on international markets.
Year-on-year inflation in Romania came in at 8.6 per cent in March in what is a 26-month high. High inflation plagued Latvia and Lithuania as well. In March, the two countries reported year-on-year inflation increases of 16.8 per cent and 11.3 per cent, respectively. Estonia reported inflation of 10.9 per cent for the same period, although it decelerated from 11.3 per cent the month before.
Ukraine, which is not an EU member state unlike the rest, also joined the same squad. At 9.7 per cent in March, year-on-year inflation hit its highest value since 1999.
