Bulgarian National Bank Predicts Higher Inflation in 2025 Amid Wage Increases

Business » FINANCE | November 12, 2024, Tuesday // 13:10
Bulgaria: Bulgarian National Bank Predicts Higher Inflation in 2025 Amid Wage Increases @novinite.com

Inflation is expected to rise moderately at the beginning of 2025, according to the Bulgarian National Bank (BNB), despite a significant slowdown throughout 2024. September’s inflation rate reached a low of 1.2% year-on-year, marking the slowest pace in the last four years.

The BNB’s latest "Economic Review" report anticipates this deceleration to continue until year-end, but projects a moderate uptick in the first quarter of 2025. The increase in inflation is attributed to income growth, which is likely to boost domestic consumption, exerting upward pressure on prices for services and food.

According to the BNB, strong private consumption and rising labor costs per unit of production are key inflationary factors, driving consumer prices higher for a variety of services and food items. However, a precise inflation forecast for next year is not specified by the BNB, nor has the Ministry of Finance released the macroeconomic framework for Budget 2025.

Recent years’ policies, including increased social payments, compensation for public sector workers, and minimum wage hikes, have supported higher disposable incomes and household consumption. This approach has sustained inflation, particularly in demand-sensitive areas like services, the BNB notes.

From January 1, 2025, the minimum wage will increase by 15%, from BGN 933 to BGN 1077. In the Ministry of Internal Affairs and the Ministry of Defense, pay raises of 30-50% are planned, while teachers, university instructors, and teaching assistants can expect raises of up to 20%.

One proposal from the Ministry of Finance to manage an anticipated BGN 12 billion deficit in the 2025 budget is to delay these salary increases for the Ministry of the Interior, defense, and education until 2026. This measure aims to keep inflation below the 2% threshold to support Bulgaria’s Eurozone membership bid.

The BNB also highlights the impact of budget deficits, financed by government securities issues, on maintaining high liquidity levels in Bulgarian banks. This liquidity has limited the local banking sector's transfer of the European Central Bank's interest rate increases to household deposits and loans in Bulgaria.

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Tags: inflation, BNB, Bulgarian

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