Bulgaria EU entry boosts Jan inflation to 7.2 percent

SOFIA – Bulgarian inflation rose to 7.2 percent on the year in January, surprising analysts, who saw the country’s European Union accession as the main driver behind the increase, data showed yesterday. Analysts said prices were pushed up by shopkeepers who tried to cash in on EU entry and a rise in insurance fees due to EU regulations. Rampant domestic consumption and government spending as well as volatile food prices also contributed to the increase from December’s annual rate of 6.5 percent. «It is a continuation of the trend before accession, when many traders were trying to see whether the consumers could bear a price hike,» said Dimitar Chobanov, a market analyst with the Sofia-based Institute for Market Economics. Although inflationary pressures were likely to remain high, annual inflation will start to fall from next month mainly due to statistical effects, analysts said. Bulgaria and its neighbor Romania joined the EU last month. Analysts are watching closely the impact of accession on inflation in both countries which hope to adopt the euro in the next decade. Unlike Bulgaria, Romania saw its annual inflation dropping more than expected to 4 percent in January, which analysts had attributed to a number of factors, including a strong currency and an elimination of customs duties. «The surge in prices is quite surprising, especially as inflation in Romania dropped,» said Simon Quijano-Evans, markets analyst with Bank Austria. «It must be EU accession-related with producers and sellers pushing up food prices.» Food weight revised Sofia’s Socialist-led government has argued that EU entry would not put pressure on prices and has forecast end-2007 inflation at 3.1 percent. Analysts say the goal will be hard to achieve due to EU convergence and an expanding economy. The Balkan country’s consumer prices rose 1.5 percent on a monthly basis from a 1.2 percent increase in December, mainly driven by a 2.3 percent increase in food prices, preliminary data from the statistics office showed. Non-food items prices rose 0.4 percent and services went up 1.3 percent on the back of a 10.2 percent rise in insurance services. As of January, the statistics office will start to calculate inflation under the EU-harmonized consumer price index (HICP), in which the weight of food prices will be significantly lower. January figures, which Brussels will consider when looking at Bulgaria’s readiness to adopt the euro, will be released on March 13. Inflation is the key challenge to the EU newcomer’s 2010 euro adoption plan, as it meets all other criteria for joining the single currency, and Finance Minister Plamen Oresharski has said Bulgaria may enter the eurozone in 2011 or 2012. Oresharski has confirmed that Bulgaria would enter the ERM-2, the two-year waiting room for euro hopefuls, before mid-2007, but has said he would not take severe measures to curb inflation at any cost to meet the 2010 target date.