ECONOMY

Bulgarians end 2006 with 6.5 pct inflation

SOFIA (Reuters) – Bulgaria’s consumer price inflation accelerated to 6.5 percent on an annual basis last month compared with November, as rising domestic demand and a jump in food prices preceded the country’s entry into the European Union. Data yesterday showed the year-on-year inflation rate, which is a key obstacle to Bulgaria’s euro adoption plans, increased from 6.1 percent the previous month but was unchanged from 6.5 percent in December 2005. The latest figure was slightly below the government’s year-end forecast range of 6.6-6.9 percent. Monthly inflation was 1.2 percent, versus 0.8 percent a year earlier. Analysts said food safety upgrades in milk and meat processing to EU standards, along with increased demand by consumers ahead of EU entry pushed prices up. «It’s all about food prices. Expenses for upgrading the processing of meat and milk plants have pushed the prices up,» said Agata Urbanska, emerging markets analyst with ING. Bulgaria’s Finance Ministry expects the indicator, the EU newcomer’s key challenge to its goal of adopting the euro in 2010, to drop to 3.1 percent by the end of 2007. Analysts say a high comparative base from early 2006, when the government hiked excise taxes on cigarettes and alcohol, should temper inflation this year, but more regulated price rises and high energy costs may counterbalance that effect. Simon Quijano-Evans with Bank Austria said price pressures should ease in the first quarter, given that the spiking effect had already occurred and the higher base. Many Bulgarians fear the Balkan state’s entry into the EU may push prices up and analysts said a jump in December food prices was likely a result of both retailers and consumers anticipating accession. They increased by 2.5 percent from the previous month, mainly driven by a 13.8 percent rise in vegetables and a 5.1 percent spike in the price of flour. Non-food items prices rose 0.3 percent, with prices of fuels rising by 3.6 percent. Bulgaria has enjoyed relatively low inflation since it pegged its lev currency to the euro in 1997, but price growth has accelerated over the past two years mainly due to a surge in global fuel prices and regulated tax hikes. Inflation is now the main sticking point ahead of planned 2010 euro adoption, as the Balkan state meets all other criteria for joining the single currency – currency stability, public debt, long-term interest rate levels and budget deficits. Bulgaria will seek to enter the ERM-2, a two-year waiting room for euro hopefuls, in the first half of this year. But its finance minister has said he would not try to curb inflation at any cost to meet the 2010 target date. Earlier this month, he said Bulgaria could adopt the single currency in two, three or five years.