Bulgaria's Central Bank Warns Inflation Could Rise to 3.7% in 2026 Amid Energy Shock Risks

The Bulgarian National Bank (BNB) has warned that inflation in Bulgaria is projected to rise to 3.7% in 2026, with geopolitical tensions in the Middle East identified as a key external risk factor. The central bank notes that the ongoing conflict is creating heightened uncertainty for global energy markets, which directly affects inflation forecasts both in the euro area and in Bulgaria.

According to the BNB, its current work is concentrated on two main areas: participation in the Eurosystem’s monetary policy framework and continuous assessment of how external shocks could influence domestic price dynamics. Officials stress that rising energy prices remain the primary transmission channel through which the Middle East conflict may fuel short-term inflationary pressure.

The issue was also examined during the European Central Bank Governing Council meeting on 18-19 March 2026, where policymakers discussed the inflationary implications of the geopolitical situation. The ECB decided to keep key interest rates unchanged, maintaining its commitment to returning inflation to the 2% target over the medium term, while emphasizing that future decisions will remain data-dependent.

The ECB underlined that the impact of the conflict on inflation will depend largely on its duration and intensity, as well as on how quickly energy price shocks feed into broader consumer prices and economic activity. The central bank also reiterated that it does not pre-commit to any specific interest rate path, with the next policy meeting scheduled for the end of April 2026.

For Bulgaria, the BNB has prepared a baseline macroeconomic projection using external assumptions as of 11 March 2026. Under this scenario, inflation is expected to peak at 3.7% in 2026 before gradually easing to 3.2% in both 2027 and 2028. The expected moderation is linked to base effects from energy prices and the planned introduction of the EU’s ETS2 emissions trading system in 2028.

In addition to the baseline outlook, the central bank has developed two alternative risk scenarios to reflect potential escalation in energy market disruptions. In the milder adverse scenario, inflation would be higher than the baseline by 0.7 percentage points in 2026, 1.4 points in 2027, and 0.6 points in 2028.

In a more severe scenario, inflation could exceed the baseline by 1.2 percentage points in 2026, 3.4 points in 2027, and 2.3 points in 2028, driven by stronger secondary effects across consumer price components. The BNB notes that these simulations are illustrative and do not incorporate possible fiscal or monetary policy responses, serving instead to demonstrate how external shocks could propagate through the Bulgarian economy.