The Bulgarian National Bank (BNB) has identified insufficient labor supply and robust private consumption as the primary drivers of inflation in the country. These conclusions come from the second issue of the central bank's ?Economic Review? for the year, which includes data up to July 9.

According to the report, annual inflation as measured by the Harmonized Index of Consumer Prices - used in line with EU methodology - reached 2.9% in May 2025. This marks an increase from the 2.1% rate recorded at the end of 2024. The rise is largely attributed to price increases in food and services.

Despite the inflationary pressures, Bulgaria's economic growth showed signs of slowing during the first quarter of 2025. The economy expanded by 2.9% year-on-year, with domestic demand remaining a major positive factor. At the same time, the negative contribution of net exports increased.

Private consumption stood out as a key element in the country's growth. It rose by 9.0% in real terms compared to the same period last year. This was supported by higher employment levels and rising household incomes, which encouraged greater spending.

The BNB notes that the combination of increased unit labor costs and strong consumer demand had the most pronounced effect on accelerating inflation. These conditions enabled businesses to pass on their rising production expenses to consumers without dampening sales.

On the credit front, the central bank reported that household lending continued to grow at a strong pace. From January to May 2025, the annual rate of increase in household credit remained consistent with levels seen at the end of the previous year, reaching 20.7% in May.

Within that total, consumer loans showed signs of slower growth. However, housing loans,still the largest contributor to the expansion of household lending,maintained stable growth rates, underlining the ongoing strength of the housing market.