Food prices slow Bulgaria annual inflation

On a monthly basis, prices in February rose 0.9% from the previous month when they increased 0.2%, data showed.

The centre-right government expects year-end inflation of 2.8% in 2012 reflecting an economic slowdown in the euro zone, Bulgaria's key trade partner.

Food prices growth slowed to 1.6% on the year in February from 3.0% a month earlier, reflecting a weak domestic demand.

On a monthly basis however they picked up to 1.6% from 0.3% in January due to a rise in vegetable prices.

Non-food prices rose 0.9% on the month in February, while prices of services edged up 0.1%.

The central bank sees inflation staying low in the range of 1.8-2.4% in the first two quarters of 2012, saying any pick ups in prices may come from an increase in global oil and gas prices.

The Balkan country operates a currency board regime under which it pegs the lev to the euro, which curtails the central bank's monetary operations and leaves fiscal policy as the key tool for steering the economy.

Finance Minister Simeon Djankov has said that the Balkan country may consider in May whether to cut VAT by one or two percentage points from current 20% to spur subdued domestic demand.

The government plans to stick to its fiscal policy and keep public spending at bay to cut fiscal shortfall to 1.3% this year and protect the currency peg to the euro from external shocks.

Bulgarian economy grew by 1.6% last year, with emerging market economists seeing growth at 1.2-1.5% this year.