Inflation in Bulgaria is slowing down, but service prices continue to rise

Slowing inflation with monthly deflation

Inflation in Bulgaria is showing signs of slowing down, with the annual rate decreasing to 5.4%. According to data from the National Statistical Institute (NSI), a monthly deflation of 0.9% was reported in June. However, the Deputy Chairperson of the NSI, Dr. Svilen Kolev, predicts that the upward trend will likely continue through July, albeit at lower rates.

The service sector and restaurants report the highest growth

The most significant price increases over the last two and a half years have been observed in the restaurant, hotel, and accommodation services sector, where growth varies between 20% and 30%. This is due to a combination of increased demand, a rise in travel, and greater market power of suppliers, allowing them to pass their costs on to end consumers.

Other sectors with high rates of price increases (around 20% annually) include hairdressing services, personal care, home and car maintenance, as well as various educational courses, including driving lessons. A key factor for these movements is the rise in labor costs, along with higher costs for electricity, rent, and fuel.

Seasonal decline in food prices

In contrast to services, weaker price pressure is observed in the food and non-alcoholic beverages sector. In June, prices in this category fell by an average of about 2%. The decline in the small consumer basket is between 2.2% and 2.5%, mainly due to the seasonality of fruits and vegetables. For some products, such as tomatoes, cucumbers, and zucchini, declines of 25-30% are reported.

Forecasts and future price risks

Expectations for July include an increase in inflation due to changes in the prices of electricity, hot water, heating, and fuels. The geopolitical situation in the Middle East may also affect fuel prices. Kolev points out that higher price movements are expected by the end of the year.

Among the factors that could lead to new price increases are the upcoming increase in vignette prices from August 1st, as well as the rise in excise duties on cigarettes and tobacco products. At the same time, although wage growth may exert pressure on prices, investments in technological updates could have the opposite effect on inflationary pressure.