Bulgaria marked the fifth month of deflation in terms of falling consumer prices as the CPI declined 1.6% y/y in December 2013, following a drop of 1.5% in November, according to statistics office data. The increase in consumer purchasing power was largely due to a decline in regulated prices, cheaper food and lower international prices of energy commodities. In monthly terms, the CPI inched up 0.3% in December, versus a 0.2% decline in November.

The drop in prices recorded in the last five months of the year slowed down the annual average inflation to 0.9% in 2013 from 3.0% in 2012.

The two administratively imposed cuts in the price of electricity from last year (by 7% in March 2013 and by 4.3% in August) have been the main internal deflation-driving factor. The price of electricity was down 11% y/y in December and heating costs fell 10.5% y/y. Accordingly, the housing and utilities sub-index of the CPI recorded a 7.2% annual drop that month, reflecting also a 0.4% y/y decrease in renting costs and a 0.8% y/y rise in the price of water.

Food prices slid by 0.8% y/y in December thanks to large domestic and foreign supplies. The UN reported last week that its FAO Food Price Index averaged 209.9 points in 2013, down 1.6% from 2012. Large stock of cereals and sugar pushed down the prices Bulgarian consumer paid for in December by 2.3% y/y and 5.3% y/y, respectively. The cost of animal fat and vegetable oil fell 8.3% y/y, meat cost 1.5% y/y less, fish prices were down by 2.9% y/y.

The statistics office also informed that the EU-harmonised CPI (HICP), used as a benchmark for the euro adoption, fell 0.9% y/y in December but edged up 0.4% on a monthly basis.

The central bank (BNB) expects a slow increase in inflation in the first quarter of 2014 under the influence of slowly growing food and energy prices. The government has forecasted 1.8% annual average inflation for this year.