Producer prices are still mainly determined by energy prices. In manufacturing, prices have not gained a lot year-on-year. In August 2012, they were only 0.6% higher than a year earlier, says Olegs Krasnopjorovs, Bank of Latvia economist.

“We knew the producer price gains were going to be minor,” he says.

Minor price gains for products sold on the domestic market (0.3% year-on-year) were among the key factors behind the slow pace of consumer price growth. Annual inflation in July and August dropped to 1.7% – the lowest level since 2010.

Private consumption has become the main driving force of the GDP, Krasnopjorovs adds.

“Slower price increases in stores led to a situation with people affording more, although their pay did not grow. Therefore, retail sales turnover (in real terms) has been climbing quite convincingly.”

According to the economist, the dynamics of the expert unit value was already expected.

Minor producer price gains for exported goods (0.9% year-on-year) partly worsened the terms of trade – the export unit value increased more slowly than the import unit value.

In future, prices will keep depending on global oil and food prices. In recent days, the world has been experiencing a drop in oil prices, which are now nearing the average of the past 12 months.

“However, oil price dynamics is very volatile. It is affected even by insignificant statements on oil production increase or decrease. It also responds sharply to news on weakening global demand.”

The economist adds that grain prices gave been gaining since June – in response to concerns about lower yields than expected. They are nearing historical heighs, he says.

Ref: 104.105.105.2574