Weekly Briefing, Vol. 52. No. 3 (BG) June 2022
Bulgarians are the most Affected by the rise in Inflation due to the low Purchasing Power of the Population
Summary
Bulgaria continues to be in last place in the European Union in terms of actual individual consumption per capita, measured by purchasing power parity, according to data from the European Statistical Office for 2021. In other words, Bulgarians continue to have the lowest standard of living in the European Union in terms of purchasing power. Bulgaria’s actual individual consumption reaches only 63% of the EU average. This is a minimal improvement compared to the data from the previous 2020, when the level in Bulgaria reached 61% of the average. At the same time, the data show that Bulgarian consumers are much more affected by rising food and energy prices than other citizens of the European Union, as low incomes in the country are further undermined by accelerating inflation. The jump in the prices of goods and services is practically eating away at the real growth of wages in Bulgaria, while the rise in food prices is already leading to accelerated inflation.
Bulgarians are not only the poorest of the rest of the EU, but Bulgarian standard of living is twice as low as in Germany. This is shown by data from the European statistical office (Eurostat), disseminated by the Bulgarian National Statistical Institute.
One of the best ways to measure the well-being of households is through actual individual consumption per capita. Bulgaria ranks last among the EU member states in this indicator – the actual individual consumption is only 63% of the EU average. In addition to food consumption, this includes shopping for clothes, going to the cinema and theater, tourist trips, healthcare, etc.
In Bulgaria, GDP per capita is only 55% of the EU average, which also ranks the country last. However, actual individual consumption is a better indicator of living standards because it takes into account the level of prices in different countries and provides data on the actual consumption of citizens in different countries. Bulgaria ranks last in the EU in this indicator as well, but the difference compared to the Community average is smaller. Just for comparison, Romania is far ahead of Bulgaria with individual consumption of 82% of the EU average. In fact, Romania is already ranked 19th in terms of living standards among EU countries, and Bulgaria has been at the bottom of the list for years.
Since the beginning of the war in Ukraine, energy prices have become central to economic policy dialogue. Rising prices have also played an important role in raising the overall consumer price index over the past few months and threatening to maintain high inflation throughout 2022. For this reason, the government focused on trying to compensate for the rise in fuel prices for households.
A study by the Institute for Market Economy in Sofia puts the current situation with fuel prices in the context of the state of household budgets and compares the prices of widely used A-95 gasoline in EU countries provided by the EC at the end of May 2022 with the latest available data on the average disposable income per capita. The combination of the two indicators makes it possible to determine the purchasing power of household income expressed in terms of the amount of fuel they can afford in individual countries.
This study also shows that Bulgaria ranks penultimate in the EU in terms of purchasing power. At the top of the list are countries such as Austria and Ireland, which combine relatively high incomes and low fuel prices compared to other European countries. The study shows a serious loss of purchasing power in Bulgaria as a result of inflation and in particular – rising fuel prices. The decline in purchasing power in terms of fuels for Bulgarians is 162 liters of fuel per month.
According to the data of the National Statistical Institute the total income average per household member during the first quarter of 2022 is 2 006 BGN and increases by 9.6% compared to the same quarter of 2021. The highest relative share of income within the total income is the one from wages and salaries (56.9%). The relative share of income from pensions is 30.9% and from self-employment – 4.9%. Compare to the first quarter of 2021 the relative share of income from wages and salaries increases by 1.7 percentage points (pp). The share of income from pensions decreases by 0.4 pp and income from self-employment – by 0.6 pp.
The nominal income by source average per capita during the first quarter of 2022 compared to the first quarter of 2021 changes as follows:
- Income from wages and salaries increases from 1 011 BGN to 1 142 BGN (by 12.9%);
- Self-employment income decreases from 100 to 97 BGN (by 2.6%);
- Income from pensions increases from 574 BGN to 619 BGN (by 7.9%);
- Income from social benefits decreases from 57 BGN to 40 BGN (by 30.9%).
The relative share of monetary income into the total income during the first quarter of 2022 is 99.7% and the share of income in kind is 0.3%.
At the same time the data shows that the total expenditure average per household member during the first quarter of 2022 is 1 821 BGN and increases by 13.3% in comparison to the same quarter of 2021. The greatest share in the formation of the total expenditure has expenditure on food and non-alcoholic beverages – 29.5% as well as expenditure on housing – 18.8%, taxes and social insurance contributions – 13.6% and transport and communication – 12.1%.
The relative share of food and non-alcoholic beverages increases by 1.1 pp compared to the first quarter of 2021 and the relative share of health – by 0.6 pp. The share of recreation, culture and education decreases by 0.8 pp and the share of housing – by 0.7 pp.
Bulgarian consumers are more affected by rising food and energy prices than other EU citizens, as low incomes in Bulgaria are further undermined by accelerating inflation. This is clear from the latest report of the European Bank for Reconstruction and Development (EBRD) Regional Economic Prospects, published on the website of the institution. According to the report, a key factor for Bulgaria’s economy will be accelerated inflation as a result of the military conflict in Ukraine, which will further hit the low incomes of Bulgarian consumers. Food prices are rising twice as fast as wages. The prices of basic foodstuffs in Bulgaria have risen by an average of 30% in just one year, with the jump in a number of products exceeding 40%.
Bulgaria ranks 5th in terms of inflation growth in the European Union. According to economic experts, such high inflation in Bulgaria has not occurred since 1998, when it reached 18%. In the last 24 years, it has not exceeded 15%. The annual inflation for May 2022 is already 15.6%. Transport services, electricity, food, heating and food have become more expensive.
The data show that the jump in the prices of goods and services actually eats away at the real growth of wages in Bulgaria, while the rise in food prices is the main reason for the accelerated inflation. This is clear from the latest edition of the monthly bulletin for the development of the Bulgarian economy of the Ministry of Finance, published on the website of the ministry. According to the document, labor income in the first quarter of this year increased nominally by 9%, as the increase offset the jump in consumer prices. However, when the growth of labor income is adjusted for inflation, the real increase amounts to only 0.1% for the period.
Conclusion
Taking into account the fact that Bulgaria is in last place in terms of living standards and Bulgarians are in last place in terms of purchasing power in the EU, it is of utmost importance for the country to catch up with the average European levels. For this purpose, the country can receive nearly BGN 30 billion from Brussels under the EU funds and the recovery plan. An agreement on this funding was signed a week ago in Sofia by EU cohesion and reform commissioner Elisa Ferreira and Prime Minister Kiril Petkov. Bulgaria has received nearly 15 billion euros so far in previous programming periods. Now Bulgaria expects a new €11 billion with a national co-financing of €2.2 billion.
One of the important areas in the new programming period is regional cohesion in the country. The reason is that the different regions are visibly lagging behind and are far from reaching the EU average. Examples are also given of the main indicators on which Bulgaria is lagging behind – the country is in the group of the last 10 countries in terms of GDP, life expectancy, total and infant mortality, research, technology and innovation, and regional competitiveness. Bulgarian regions have one of the highest percentages of young people (15-24) not in employment, education or training.
At the same time, the government approved the draft Human Resources Development Programme (HRDP) 2021-2027, which is co-financed by the European Social Fund and the national budget.
The implementation of the Programme will provide support for workforce development and overcoming labor market challenges. The main objectives of the programme also include providing more and better opportunities for social inclusion of vulnerable groups, as well as providing equal opportunities for participation in the economic and social life of the country.
It is expected that more than 740 000 people will be supported through the implementation of the procedures financed under the programme.
The draft programme is to be sent to the European Commission for formal approval.
Whether all these measures and efforts will help the Bulgarians to overcome the gap with the average European levels in terms of the general standard of living remains to be seen. For now, Bulgaria remains one of the poorest countries in the European Union.