site.btaEase of Inflation Largely Due to Cheaper Energy Resources - Economist

Economist Lachezar Bogdanov of the Institute for Market Economics commented for BTA on the decline of Bulgaria's inflation to 17.6% in October - the first such month-on-month decrease since January 2021, which the National Statistical Institute reported on Tuesday.

Bogdanov said that the rate eased due to the cheapening of oil, liquid fuels and electricity, on the one hand, and to an increase of the base from which the annual variation is calculated: the prices of energy and other key raw materials had already started last October.  

He noted, though, that the trend has not been reversed and what will happen in winter has yet to be seen.

The economist does not give the Cabinet credit for the lower inflation on account of its energy policy and in particular its policy on liquid fuels, which rather has the opposite effect. "We can see that Lukoil is getting a derogation to use cheaper Russian oil, but Bulgarian consumers do not find this translated into domestic market prices that are tangibly lower than the European ones," the expert noted.

In his opinion, the overall fall of the prices of natural gas and electricity in Europe is the leading factor of the decreased inflation in October, as these prices in Bulgaria follow the European trend.

Along with these short-term variations, account should also be taken of the inclusion in the supply mix of cheaper gas from Azerbaijan, which was achieved thanks to the efforts made by the State over the last ten years. The lower prices of LNG, for their part, are due to the full storages in Europe and the warm weather, which have pressed down the current prices for the month.

Future inflation trends depend on the tightening of the interest rate policy of central banks in Europe and on the shocks related to the war and the unpredictable developments on Europe's energy market.

Bogdanov expects the vigour of construction of new LNG terminals in Europe to minimize the effect on the power industry of such shocks and make possible a faster-than-expected adaptation to diversification and alternative supplies.

"If they feel that the natural-price and electricity crisis in Europe is gradually being resolved and the inflation pressure is starting to ease, it is more likely that somebody in Bulgaria will pluck the courage and take responsibility to form a cabinet and a coalition," the economist commented, specifying that this forecast takes account of the presumable apprehensions of part of the parties to commit in anticipation of a grave economic crisis.