Bulgaria’s end-year inflation, at 4 percent, disappoints analysts

SOFIA (Reuters) – Bulgarian inflation eased in 2004, data showed yesterday, but analysts were disappointed with the year-end result and warned that the government should rein in a credit boom to avoid prices rising quickly this year. The annual headline figure declined to 4.0 percent in December, well below the 5.6 percent seen in 2003, the statistics office said in a statement. The centrist government of Simeon Saxe-Coburg is targeting a 3.5 percent inflation for end-2005, a level which analysts say will be difficult to achieve due to a boom in credit growth that caused bank lending to soar by 50 percent last year. On a monthly basis, December inflation quickened to 1.3 percent, mainly due to a hike in food prices, which helped keep the year-end annual figure above the government’s target of 3.9 percent. «Obviously, this is a disappointment, but it’s not a problem,» said Bank Austria analyst Simon Quijano. «It was above our expectations of year-end inflation of 3.6 percent.» Food prices were the most significant factor behind the monthly rise in December. They grew by 3.4 percent, fueled mainly by a 4.2 percent spike in the cost of pork, a typical occurrence in winter, the stats office said. Non-food prices fell by 0.2 percent, while services increased by 0.1 percent. Bulgaria’s central bank has so far unsuccessfully tried to limit the loan expansion to 30 percent, and it has committed to take more restrictive steps this year. Analysts suggest the bank should increase the minimum reserve requirements on deposits from their current 8.0 percent to soak up excess liquidity. «The risk is obviously on the upside and we’ll be looking for what the government and central bank will do and for any signals that there might be potential problems here,» said Agata Urbanska, an analyst at ING Bank. The Balkan country has enjoyed relatively low inflation since it bound its lev to the euro in 1997 in a currency board regime following an economic crisis that brought the economy to its knees.

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