Bulgarians are Willing to Spend 90 Cents of each Leva they Earn
Household income and expenditure data in the fourth quarter of 2018 triggered mixed responses. As is often the case with such an opportunity, most media have put the accent on the "bad" - faster spending growth (10.5% on an annual basis) than income, although income growth (7.5%) is significant higher than any changes in the price level. Examined in a vacuum, these data may seem worrying for some, but from an economic point of view there is nothing surprising at least at this stage.
In the second half of 2018, statistics recorded the strongest quarters of the average consumer prediction of the pre-crisis households (0.90 and 0.87 respectively, which means that every 1 lev income households consumed respectively 90 and 87 st. in the third and fourth quarters of 2018). The marginal propensity for consumption is over 1 for the sixth consecutive quarter, which means that household spending rises faster than their income. However, this dynamics can not be explained only by changes in the price level, although apparently higher inflation in the second half of 2018 has played its role. However, this process began well before the surge in inflation last summer and shows a longer-term increase in consumption due to good earnings and a strong labor market. Household behavior is also supported by the higher values of the consumer confidence indicator for 2018 compared to 2017.
Household expenditure data are highly positive - food costs reach a 30.2% bottom and nothing in 2019 for the first time will fall below 30%. This dynamics speaks of an improvement in households' living standards as they show a decline in the relative share of the funds they have to spend on essential goods. Although these data must be handled carefully due to their volatility, the...