SOFIA (Reuters) -Bulgarian inflation may jump when the euro currency is adopted on January 1 as retailers round up prices, but the impact will fade quickly and the benefits will be far greater, ECB
Lagarde Warns of Temporary Inflation Spike with Euro Adoption in Bulgaria
Inflation Concerns Amid Euro Adoption
SOFIA (Reuters) -Bulgarian inflation may jump when the euro currency is adopted on January 1 as retailers round up prices, but the impact will fade quickly and the benefits will be far greater, ECB President Christine Lagarde said on Tuesday.
Public Opposition to Euro
Around half of Bulgaria's public oppose euro adoption, fearing that it will impinge on sovereignty and retailers will exploit the changeover to raise prices.
Temporary Inflation Effects
"This concern is entirely legitimate," Lagarde told a conference in Sofia. "Currency changeovers can produce a temporary uptick in measured inflation, often when firms round up prices during conversion."
Long-term Economic Benefits
At 4.1%, Bulgaria already had one of the highest rates of inflation in the European Union in September and the rate is now increasing, while euro zone inflation is broadly at the 2% target. If accession criteria were assessed now, Bulgaria might not meet them.
The one-off inflation jump is normally between 0.2 and 0.4 percentage points and it was around 0.4 percentage points in 2023 in Croatia, the last country to join the currency bloc, Lagarde said.
She argued that once accession takes place, uncertainty among citizens has naturally receded, making the benefits more obvious.
"The greatest risk countries faced was not losing sovereignty or seeing an increase in prices," Lagarde said. "It was losing reform momentum once inside the euro area, and thus missing out on the full benefits of the single currency."
(Reporting by Balazs Koranyi; Editing by Andrew Heavens and Kevin Liffey)
