Inflation in Bulgaria

A short history of inflation in Bulgaria

The Banking Collapse (1996 to 1997)

Bulgarian inflation reached 547.6% in the year to December 1997, by some distance the largest figure in Europe in that decade. The cause was a banking collapse. Through 1996 a third of the country's banks failed, the central bank printed money to rescue them and to fund the government, the lev lost most of its value, and savers who could reach their deposits withdrew them to buy anything that would hold value.

The Currency Board (1997 onwards)

It was stopped by removing the central bank's ability to do it again. On 1 July 1997 Bulgaria adopted a currency board, fixing the lev to the Deutsche Mark and requiring every lev issued to be backed by foreign reserves, which left no mechanism for financing a deficit by printing money. Inflation was 1.6% a year later. The lev was redenominated at a thousand to one in July 1999, and the peg carried over to the euro when the mark was retired.

Post-Covid Inflation (2021 to 2023)

In Bulgaria, prices rose fastest in September 2022, at 15.6%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.