High inflation is a real test for the world economy and the price shock has already reached Bulgaria. In April, the rise of the cost of basic necessities in the country reached 20%. Some of the prices were inflated speculatively but there was no going back to previous levels. In May inflation in Bulgaria reached 15.6% compared to May 2021. The average annual inflation in the Eurozone was 8.1%. Average inflation in Bulgaria is expected to climb 20% by the end of the year. This is an important signal about the economic situation distancing Bulgaria from the countries that have adopted the single European currency.

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"It is true that the state reacts to the inflationary pressure by introducing various social payments, a reduction of VAT on bread, a discount on the price of fuel and pension hike, but those measures are still catching up to the rising prices and are not fully effective. That's why people got the impression that the support is not enough,"  economist Rumen Galabinov said about the measures approved in the updated state budget.

"We need much more investments. European funds are important, but we must also attract private investments, public-private partnerships, in order to have more added value in the economy," he said in an interview with BNR Blagoevgrad.

"There was some price stabilization in the oil market in the past two weeks, while the gas market also calmed down. However, the summer season is also an important factor. Inflation may reach around 20% in the second half of the year. Domestic demand and consumption are very important at the moment. We must not allow stagnation and drop in consumption."

"Bulgaria is currently facing a global risk and this is the risk of stagflation. This is permanently low or insufficiently accelerated growth of the gross domestic product, combined with high inflation for a long period of time," the expert says. Therefore, the approach in the monetary and fiscal policy must be changed and the state should focus on two things – investments and debt buy-back. "More investments in the economy can help us overcome the price shock", Galabinov also pointed out:

"When it comes to investments, the state could help mainly in large national projects in infrastructure, or in separate structurally determining areas of the economy, which would make both employment and incomes rise significantly. More jobs will be created and budget revenues will rise. All this drives the economy. The anti-crisis measures, such as the updated budget, higher pensions, zero tax rates on flour and bread and a discount for fuels will contribute to preserving the standard of living and purchasing power. But at the same time, without these programs and investments that I am talking about, the social measures and payments will not contribute much to the growth of the Gross Domestic Product. Some of these measures directly affect the money supply, which may lead to even higher inflation. It is possible that such measures might give a boost to inflation rather than having an anti-crisis effect."

Compiled by: Gergana Mancheva

English: Alexander Markov