UBB: Inflation is retreating hesitantly
15 February 2023
While analyzing the inflation dynamics and the budgetary sphere during the previous year, UBB provided its comments on key economic indicators of these two national economy areas, based on the data available to date.
The bank's analysts marked that, according to NSI’s harmonized index, the inflation in the country reached its peak in 2022 but is still going down rather slow.
“In the fourth quarter of 2022 the annual growth rate of the harmonized price index started to decline, as expected - it dropped down to 14.3% as at December, or by 1.3 percent below the year’s peak value (15.6% in September). Such annual dynamics (on a monthly basis compared to the same month of the previous year) corresponds to an average annual inflation of 13.0% for 2022, which is very close to our forecast of 13.5%.”, commented the Chief Economist of UBB, Mr. Emil Kalchev.
In its turn, the core inflation (excluding food and energy) continued its growth, reaching a peak of 13.9% in December. “In other words, the price growth of the other products and services developed its own dynamics, and we cannot claim any longer that it is driven by energy prices. In fact, the classic inflationary spiral started its spinning, driven by the industrial behaviour of producers and consumers, aiming to overtake the inflation. Thus, the suppliers and buyers themselves additionally fuel the price growth”, commented Kalchev.
Due to the Covid pandemic, the budget expenditure (globally and in Bulgaria) increased, but the revenues to cover it proved to be lower as a result of the economic downturn. The energy crisis that ensued, the war in Ukraine and the inflation in turn pushed public expenditure up, and in Bulgaria also the political instability played a part in this situation. “In this context, the realised cash deficit of BGN 1.4 billion (0.8% of the forecast GDP) at the end of 2022 is a real achievement, comparing it to the target deficit of BGN 7.6 billion set in the Budget Act. This good result has been achieved due to a slight revenue overperformance and non-realised costs. There was significant saving of capital and social expenditures, subsistence costs and others. Apparently, these had been planned rather generously in the State Budget, and in the unstructured political environment they could hardly be spent effectively. In line with the above, it is also certain that there is no approved budget for Y2023 but the applicable one will be that for last year.”, concluded Emil Kalchev.
The successful issuance of euro-bonds amounting to EUR 1.5 billion on 15th January this year, which will be used for repayment of an old debt and will not increase the state liabilities, poses the assessment of the global financial market of Bulgaria’s public finance and it seems much more optimistic than the tone of the already launched election campaign.