Bulgarian National Bank Predicts Continued Economic Growth and Inflation Deceleration

The Bulgarian National Bank (BNB) anticipates a gradual slowdown in annual inflation during the second half of the year, as outlined in Issue 2 of its quarterly publication, "Ikonomicheski pregled" (Economic Review), available on the central bank's website.

According to the report, private consumption and rising unit labor costs, particularly in the context of labor shortages, will continue to exert upward pressure on final consumer prices. Despite this, the overall trend is expected to be a deceleration in inflation.

The analysis highlights that the annual growth rate of the Harmonized Index of Consumer Prices (HICP) decreased to 2.8 percent in June. This slowdown is largely attributed to a base effect, resulting from high consumer price growth rates in 2023, especially in the service and food sectors. However, domestic factors such as rising labor costs and strong consumer demand remained significant contributors to inflation. In June, the largest contributors to headline inflation were services, goods and services with administratively set prices, and tobacco products, followed by food items.

The BNB report provides an overview of balance of payments flows, monetary and credit aggregates, and their interactions with the real economy and price stability. It also examines trends in the international economic environment, which directly affect the Bulgarian economy. The data used in this analysis was current as of July 15, and the short-term economic outlook for Bulgaria, through the fourth quarter, is based on the BNB's macroeconomic forecast as of June 26.

In the first quarter of the year, Bulgaria's real GDP grew by 0.4 percent compared to the previous quarter, with annual economic activity growth accelerating slightly to 1.9 percent...