Bulgarian consumer price inflation increased to 2.7% in August on an annual basis from 1.9% a month earlier, due to a surge in tobacco and fuel prices, official data showed on Monday.

On a monthly basis the index inched up 0.1% , down from a 0.4% increase in July. Meanwhile, the harmonized index of consumer prices stood at 3.2% on a yearly basis in August and 0.2% on a monthly basis.

August is the second month in a row, in which Bulgaria's CPI increase on an annual basis.

Food prices in August went up by 0.4% on a monthly basis, non-food prices fell 0.1% mainly because of a decrease in prices of clothes.

A falling GDP and increasing inflation rates have recently raised concerns that Bulgaria may face the risk of stagflation. Such fears were fueled by the rise in producer prices and consumer price index since the beginning of the year, except for a few summer months, alongside with the contraction of the Bulgarian economy.

Double-digit inflation and a growing current account deficit have prevented Bulgaria from joining the ERM II, so-called waiting room to the eurozone, since it joined the European Union in 2007.

The center-right government dropped its plans for applying for ERM II after raising the alarm that the 2009 budget gap was 3.7% of gross domestic product rather than the 1.9 % due to unaccounted procurement deals.

Bulgaria's economy contracted by 3.6% on an annual basis in the first quarter of 2010 from 5,9% in the previous quarter, but the government hopes for a 1% economic growth for this year as recovering exports bolster the expansion.