CPI inflation accelerated to 3.0% y/y in November, up from 2.5% y/y in the previous month, the stat office (NSI) reported. The acceleration was underpinned by stronger growth of food prices, fuel and utility services prices and we expect that these factors will support further increase of consumer inflation in the next few months. On a m/m basis, the price level rose by 0.4% m/m.
Food inflation picked up to 4.9% y/y in November, driven in particular by rising prices of bread, meat, fruits, milk and eggs. Milk and eggs price growth picked up noticeably to 10.1% y/y in November, which we think is related to both the egg contamination scandal in the past months as well as to the overall EU dairy products price developments. High domestic demand and more expensive imports of food products will continue to exert an upward inflationary pressure in the next months, in our view.
Non-food inflation speeded to 2.0% y/y during the month, boosted by strengthening fuel prices. Fuel prices rose by 7.0% y/y in November compared to 4.7% y/y in the previous month. The reason is mostly related to lingering base effects, as fuel prices fell in Nov 2016 and have been rising in the past few months of 2017, reflecting the ongoing recovery of global oil prices. We, however, expect base effects to start acting in the opposite direction as of January though due to the strong increase in the fuel prices in the beginning of 2017.
Utility prices picked up to 5.3% y/y mainly on account of the 23.1% y/y growth of district heating prices during the month. Heating prices rose by 3.6% m/m in November despite the slight gas price reduction as of October. We expect that utility prices’ inflation will rise further as of Q1/2018 due to expected water supply price hikes. State-owned Bulgargaz also demanded a new 2.83% gas price hike as of Jan 2018 we rather believe that the utility regulator will not approve a price raise.