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Economists: high fuel prices slow down retail turnover

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First and foremost it was growing fuel prices resulting in dropping sales that slowed down the retail trade turnover, Latvian economists say.

DnB Nord banka economy expert Pēteris Strautiņš,

I could put forward a hypothesis that during periods with growing fuel prices as in January, drivers try to postpone visiting gas-filling stations, while during periods with dropping prices – they rush to make use of this time. Similalry, the news on the expected tax rise could have boosted filling in December, when fuel sales grew 6.2% on monthly basis. Neither does the snow propel people to switch to private cars. Smuggling might have added to it as well, however news on price gains in the black market does not suggest that.

It should also be pointed out residents deposits hit their highest in history during January and December. Cash in circulation does still lag behind the fat years, despite reporting a growth of 20.4%.

SEB bank economist Dainis Gašpuitis,

After celebration purchases at the end of the year, we did expect slightly smaller activities of customers. However, this drop is mostly explained by fuel sales decrease.

Along with strengthening economic tendencies, consumption started to recover as well, so we will see surging sales this year, affected by the growing inflation and taxes, though, because they will take most of the potential income increase. Consumption structure will keep changing as well.

Most likely fuel sales will keep dropping, due to various reasons. Using a private car becomes more and more expensive. This makes many drivers revise their habits and switch to small volume cars. The question is how much of this drop is an actual decrease in the consumption and how much is due to the shadow economy.

Thus the government should repeatedly revise the excise rise effect and activate its activities in combating the shadow economy, which is given favourable grounds with the upcoming tax rise.

It is likely the high prices will add to the expansion of the illegal fuel market. Moreover, it will expand also due to possible oil price gains and tax rise. Bigger costs on fuel will also have an impact on other segments of consumption and the total growth of it. So will the climbing food prices, making many people reconsider the content of their consumption basket by saving and choosing cheaper products.

Non-food goods groups, consumers will not be ready to abandon, will report more activity. Consequently, the supply of the shadow economy will grow as well. Moreover, no considerable prevention results will be seen in a short-term.

Swedbank senior economist Lija Strašuna,

Higher taxes and growing inflation, in particular, on essential goods and services, will keep limiting households consumption. Labour market will show slow recovery as well. Even if the unemployment drops, new job positions will not appear that fast. Although retailers optimism has increased in early 2011, the mood of consumers is still changing, without any tendencies to improve. People start planning large purchase for the next 12 month more often, however mostly households try not to make large purchases. Moreover, the majority does not even hope for a wage rise.

Latvijas Krājbanka senior analyst Olga Ertuganova,

After the spending linked to Christmas, January always reports poor customers activity, however their actions are even more limited this year, due to various reasons – the severe winter, high oil prices, tax rise and pessimistic discussions on the fiscal consolidation.

Recent global and local events confirm our forecasts that the domestic market is unlikely to become a driving force of the economic recovery in near future. Even if the average salary surges a little, food and energy resources price gains will limit the purchasing power. Of course, there is also a group of people with a stable financial situation, boosting the consumption that has slowed down during the past half a year. However, they are still conservative regarding their spending, because the government’s decisions and the direction of the state are unpredictable. If there are no considerable external shocks (e.g much higher oil prices, expanding eurozone fiscal crisis, etc.), a moderate optimism and gradual labour market and economic recovery will promote also the retail growth. However, there still are no grounds to say that we have even partly returned to the pre-crisis consumption level.

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