Analysts warn of stagflation risk in Bulgaria

Analysts warn of stagflation risk in Bulgaria

Bulgaria's economy was risking stagflation, analysts told Dnevnik daily as official figures showed year-on-year inflation reaching a seven-month high of 1.3 per cent in March. Monthly inflation was 0.2 per cent.Soaring prices of energy resources, metals and higher excise duties, as well as faltering consumer spending and continued recession were blamed for the increase.In February, annual inflation rose to 0.9 per cent from 0.4 per cent in January, National Statistical Institute (NSI) data showed. The acceleration was attributed to spikes in fuel, cigarette and alcohol prices.Consumer prices rose by a cumulative 1.4 per cent in the first quarter of the year, with forecasts predicting that consumer spending would continue to shrink, while the economy faced continued recession or stagnation at best."[Stagflation] is definitely one of the possible scenarios," according to Vladislav Panev, chairperson of the board of Status Capital. "In the first three months of the year, inflation was more than one per cent and that was with domestic demand shrinking. Perhaps we are already feeling some stagflation."Tsvetoslav Tsachev, chief analyst at local brokerage Elana Trading, was more optimistic: "The signs of stagnation are here, but I think we will dodge it," he said. However, a possible tax hike, in particular the indirect taxes, could stoke stagflation in Bulgaria, he said.In stagflation, consumer prices rise despite slow economic growth and possible high unemployment. NSI is expected to release its first estimate for first-quarter economic growth later in April.Bulgaria's Cabinet targets 2.2 per cent inflation in 2010, but expects the economy to grow by only 0.3 per cent on the back of recovering exports.

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