CPI inflation accelerated to 2.6% y/y in May, up from 2.0% y/y in the previous month, the stat office (NSI) reported. The acceleration was driven mostly by stronger growth of food, utility and fuel prices. In m/m terms, CPI inflation rose by 0.3% m/m in May, slowing from the 0.4% m/m growth in April. We expect headline inflation to accelerate further in the next quarters due to the recovery of oil prices and planned increases of regulated prices as of Q3.
Food inflation accelerated to 2.0% y/y in May due to unprocessed foods like vegetable and fish. On the other hand, prices of most other food products, such as bread, meat and milk, actually slowed down while fruit prices even registered a y/y decline. Strong domestic demand has been resulting in rising and more expensive food imports though, so we expect that food CPI inflation will post further acceleration in the next months.
Non-food inflation also picked up to 2.4% y/y in May, to a large extent reflecting the sharp acceleration of fuel prices’ growth. Fuel prices rose by 7.2% y/y, compared to 1.7% y/y in the previous month. Overall, we expect further acceleration of fuel prices in the next few months as high base effects diminish.
Utility price inflation picked up to 4.0% y/y in May and we expect it to accelerate faster as of July, when the utility regulator is projected to raise the gas, electricity, district heating prices. State-owned Bulgargaz has submitted a request for 18% hike of gas price as of Q3. The exact hikes in Q3 are still unknown but they will certainly exert upward pressure on the headline inflation, as utility prices have large weight in the consumer basket, in our view.