Bulgaria is grappling with a sharp inflation surge exceeding 7% on a monthly basis, the steepest rise in roughly four years, according to Simeon Dyankov, chairman of the country's Fiscal Council and former finance minister.

Speaking on Bulgarian National Television, Dyankov said the government must address inflation immediately. "First, they have to deal with one problem, which is inflation," he said. "Yesterday there was data for a very sharp increase in inflation in the last month, over 7%. Which we have not seen for, perhaps, 4 years on a monthly basis."

Bulgaria's National Statistical Institute had not released official inflation data confirming this figure at the time of Dyankov's statement.

The spike comes as Bulgaria's new Progressive Bulgaria-led government prepares to tackle economic policy. Dyankov suggested that anti-inflation measures are part of the governing party's stated agenda, though the party has not confirmed this publicly.

Deficit figures may understate the real picture

Dyankov challenged the official fiscal outlook, arguing that Bulgaria's budget deficit may be significantly worse than publicly reported.

He recalled earlier government claims that the country's deficit sat below 3%, while the European Commission recently estimated it at 3.5%. Even that figure, Dyankov said, excludes accounting adjustments involving bank transactions and shifts related to the Bulgarian Development Bank.

Once those elements are factored in, he believes the 2025 deficit could reach between 5% and 5.5%. This is Dyankov's analysis based on what he described as incomplete official accounting.

"This is important so that in the next budget, which they also have to adopt within a month, perhaps, to know what is really being based on," Dyankov said. He stressed that a clearer fiscal picture is needed before new budget decisions are made.

The Bulgarian government has not confirmed Dyankov's deficit estimate or provided the detailed accounting adjustments he referenced.

Price caps won't work, wage indexation must go

Dyankov dismissed price caps as an effective inflation control measure. "One way, to call it populist, is to start putting different price ceilings," he said. "This type of ceilings, I am convinced, that the new government will use in some form, but they don't work."

He argued that such measures depend on unclear market structures and are difficult to implement realistically.

Instead, Dyankov proposed limiting demand pressure in the economy, primarily by stopping automatic wage indexation across the public sector. He explained that these mechanisms create a feedback loop between inflation and wages.

"We have also talked to you many times, to immediately remove automatic indexations in the entire state administration," he said. "In fact, this fuels inflation in Bulgaria."

He gave an example that some public salaries, including his own linked compensation, adjust automatically with average wages in the National Assembly. A 7% inflation rate could translate into similar wage increases within months, perpetuating the cycle.

Dyankov argued that a new government could implement such changes immediately, with effects on inflation appearing within two to three months. This remains a recommendation rather than government policy.

Government restructuring proposed to cut spending

Alongside wage policy adjustments, Dyankov suggested administrative restructuring to reduce state spending and slow inflationary pressures.

He proposed cutting the number of ministries and deputy prime ministers from 19 and 3 respectively to around 15 or even 13 positions.

The aim would be to streamline government, reduce public expenditure, and ease the demand-side pressures feeding inflation.

This is Dyankov's recommendation, not a confirmed government plan.

Why it matters for British readers in Bulgaria

British businesses operating in Bulgaria face planning challenges if inflation remains elevated at the levels Dyankov describes. Rising costs affect supply chains, wages, and consumer demand. Companies with Bulgarian operations should monitor fiscal policy developments closely, particularly any moves to cap prices or restructure wage systems, both of which could affect local market conditions.

British expatriates will feel the impact directly through higher living costs. If Dyankov's inflation figures prove accurate, purchasing power erodes quickly, particularly for those on fixed incomes or pensions paid in sterling. Grocery bills, utilities, and services are all likely to rise in the coming months, and the uncertainty around which measures the government will actually implement makes financial planning more difficult.

Investors should note the divergence between official deficit figures and the Fiscal Council chairman's warnings. If the real deficit does approach 5.5%, Bulgaria may face pressure from the European Commission to implement austerity measures, which could affect economic growth and investment returns. The lack of transparent fiscal accounting raises questions about the reliability of official economic data.