Latviski English По-русски
Wednesday 24.01.2018 | Name days: Krišs, Eglons, Ksenija

Economists: inflation to reach 5%

(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU

The annual inflation rate of 4% slightly exceeds the previous forecasts; moreover, currently there are no projections that the inflation will not keep climbing, the economists believe.

Swedbank senior economist Lija Strašuna:

The food price surge turned out to be stronger than expected, however, slower than in January. Also, the fuel price growth slowed down. The global raw material price gains continue to be one of the key factors contributing to food and fuel price inflation. Since Latvia cannot influence the global prices, improving competition (e.g. by making more transparent pricing mechanism, starting with public procurements) is one of the options to reduce price increase pressure on the domestic market.

The domestic demand remains weak and it is not expected that this year it could significantly contribute to price gains. Still, sales campaigns are widely observed, not only due to seasonal factors: for some food products, housing maintenance and furnishing goods, as well as personal care products, etc, which reduce the increase in consumer prices.

If the planned tax raise is approved, then, most likely, the annual inflation rate will fluctuate around 4% in the remaining months of 2011.

When implementing the tax policy, it is necessary to balance the inflation and deficit reduction – the government’s resolution not to increase consumption taxes in 2012 is commendable, yet may prove to be insufficient, in order to reduce the inflation and meet the Maastricht inflation criterion. Whereas, if the tax cuts are considered, other measures will have to be implemented to reduce the budget deficit, namely, on the expenditure-cuts side.

SEB banka economist Dainis Gašpuitis:

As expected, food prices continue to flare up the inflation, particularly vegetables, milk, dairy products and fruits. Also fuel prices, recreational and cultural segment reported an increase. While the observed inflation rise was hindered by clothing and footwear seasonal sales campaigns, yet it will grow again with the arrival of new collections in the coming months. Heating prices also fell. Similarly, the implemented sales campaigns and discounts in many segments played a major role in hindering the inflation.

According to the forecasts, the annual inflation has reached 4%, indicating that its growth has not stopped yet. A sharp increase in inflation was also observed in both Estonia and Lithuania, where over the year prices rose by 5.7% and 3.1%, respectively. The previous trends in food price changes, determined by global trends, or food supply decline across the world, will prevail. High fuel prices will be maintained for some time due to the unrest and uncertainty in North Africa and the Middle East, which can also foster sharp price gains. Similarly, the inflation could spike by the end of sales campaigns and discounts, when the recent tax and traders’ markup effect could become more tangible. The overall assessment of the global price developments include the view that in the second half of 2011 the price surge will become more moderate, as well as the current food and oil surcharge is periodical and will not significantly contribute to price rises in other segments. However, the oil price development is accompanied by huge uncertainty, as well as climate conditions. If the weather is favourable and the harvest – good, the food prices will fall.

It is expected that central banks will take a more active role in combating inflation, while in Latvia the inflation will be kept up by tax and tariff increases. In other words, on April 1, the electricity tariffs will grow and their indirect effects are difficult to predict. Also starting with June 1, the scheduled tax changes in the consolidation package will be factors to maintain the inflation. If Latvia cannot influence the external processes, it is very important to maintain a balanced approach to the internal factor impact on the inflation and control it, in order not to endanger the current economic recovery. Despite the factors that foster inflation, its increase will not be disproportionate – it will be slowed down by a small salary growth, unemployment levels and low purchasing power.

DnB Nord Bank economic expert Pēteris Strautiņš:

The annual inflation rise to 4% in February certainly draws attention; however, nothing has happened particularly in this month; compared to January, prices increased by 0.3%, which is a very moderate price surge for this month – in the past ten years it accounted for 0.5% on average.

The fact that in February 2010 prices remained unchanged facilitated the annual inflation rate to reach the important psychological threshold. While in April and March 2010 prices rose by 0.5% and 0.9%, respectively; therefore, it is likely that the inflation rate will drop during the same months in 2011. However,the last year’s rather flat price level, will be overshadowed by the electricity tariff and tax change effects in July 2011. Also the price index will eventually reflect the surging oil and metal price influence. Meat prices will display the delayed effect of grain price growth; therefore, it would be too optimistic to claim that the inflation rise of 4% in February will be the highest point in 2011.

The service price deflation has certainly ended, as prices are slowly rising for the third consecutive month. This reflects both the growing price pressure and the economic activity recovery. The demand is not reducing anymore; consequently, the need to lower prices has declined. On the yearly basis, the service prices are lower, but this will not continue for long. The surge in price of goods has resumed already in January 2010.

There is high likelihood that Latvia will fail to comply with Maastricht inflation criterion in the second half of 2011 and early 2012. The reason for this will be the relatively high food and energy proportion in our consumer basket. However, if the global prices of these products stabilize or decrease, then for the same reason inflation in Latvia could even be lower than in the eurozone.

Latvijas Krājbanka chief analyst Olga Ertuganova:

Unfortunately, it should be noted that inflation expectations are rising, due to the external factors and rather unpredictable tax policy, as well as due to the announcements about energy tariff increases this year.

Of course, the main question is whether the sharp price increases during the last months will remain as a permanent trend, or whether it is a result of many factors, and the inflation will eventually calm down? To answer this question, first, again it should be noted that this time it is an inflation driven by supply factors, not demand. Consequently, the price growth is still to some extent limited by the inhabitants’ weak purchasing power. Of course, we cannot affect the global oil and grain prices, but given the weak demand, manufacturers and traders have relatively limited options for unjustified price increases. Unfortunately this works only in areas with high competition, so it is now essential to focus on competition issues, particularly in the trade sector.

In terms of global food and oil prices, their surge is now more affected by short-term factors – geopolitical tensions, natural disasters, major speculations on financial markets, etc. Therefore, it is very likely that with favourable weather conditions, as well as with the situation stabilization in the Middle East, the oil and agricultural commodity price pressures could ease off. Yet, the current trends will continue in the coming months, and the annual inflation in Latvia might approach 5% by the summer.

Leave a reply

Minister: foreigners find Latvia’s business environment more and more attractive

«Measures were performed last year to improve the business environment and make it more attractive for local and foreign investors, as well as significantly ease everyday work for them,» said Latvian Economy Minister Arvils Ašeradens.

Number of students in Latvia declined 35% in the past decade

The number of students accounted for 81.6 thousand in the academic year 2017/2018, indicating a decline of 1.6 % over the year. During the past decade, due to the population decline, the number of students has reduced by 43.8 thousand or 35 %.

National Alliance member: small countries cannot afford legal and corruption scandals

«Every resident living in a democratic country finds it difficult to follow political processes and what political interests each party has. More often than not the loudest and more expressive politicians do not have any wisdom to share or a state development plan to offer and fit Latvia’s interests. If the time comes when we conclude that we do not like a newly-elected Saeima...

Italy's leading party drops euro referendum plan

The anti-establishment 5-Star Movement, leading opinion polls ahead of a March 4 election, has presented a 20-point program which makes no mention of a referendum on Italy’s membership of the euro zone.

Latvia shares experience in civil rights reforms with Uzbekistan

Uzbekistan is one of Latvia’s priority countries for development of cooperation. Considering Uzbekistan’s launched reforms for state administration, Latvia is ready to continue offering support and sharing experience, says Foreign Ministry’s special assignment ambassador Igors Apokins.

Estonian state rail cargo company worked with million-euro losses in 2017

Estonian state-owned rail cargo carrier EVR Cargo concluded the year 2017 with net losses of 1.2 million euros, but managed to earn a million euros in from October to December 2017.

Alcohol industry to adopt social responsibility symbols on labels

More than 60% of all labels of wine and other strong alcoholic beverages purchasable in Latvia will be added with a special social responsibility symbols, reminding residents of responsible consumption of alcohol, BNN was informed by Latvian Alcohol Industry Association (LAIA). initiative «On saving Agenskalns market» submitted to Riga City Council

An initiative started by Anda Baidekalna «On saving Agenskalns market» has been submitted to Riga City Council for review. More than 2,000 people signed in favour of this initiative on portal. Now Riga City Council will have to decide on approval of this initiative and develop a plan for development of Agenskalns market to preserve its functionality.

Estonian construction price rise influenced most by higher labour costs

Estonian construction price index grew by 1.5% in 2017 aligned with the average of 2016, Estonian statisticians calculated.

Latvian Economy Ministry proposes self-regulatory measures for postal sector

The problem with postal items lacking addresses can be resolved using self-regulatory measures in the postal industry, as mentioned in Economy Ministry’s prepared report on new measures and proposal for mechanisms to help make the work performed by the postal sector more efficient.

Venice tourists stunned over 1 100-euro restaurant bill

The leadership of the picturesque Italian town of Venice has pledged to ensure justice after four Japanese tourists complained of having been handed a 1,100-euro bill for steaks, water, service and a plate of fried fish.

Ratification of Istanbul Convention falls through in Latvia

Unity is the only one of the coalition parties in Latvia that has expressed support for the ratification of Istanbul Convention so far, politicians say.

Spain sees Puigdemont's trip to Denmark as provoking his own arrest

A judge of the Spanish Supreme Court has blamed Catalonia's former President Carles Puigdemont of seeking to provoke his own arrest by visiting Denmark from his country of exile, Belgium, as the politician faces charges carrying a possible prison sentence of up to 30 years.

Latvenergo: Latvia is the largest energy exporter in Baltic States

Latvia continues exporting electrical energy produced in the country – as of Monday, 22 January, it was 832 MW. Especially intensive energy production is recorded for Daugava’s hydro-electric power plants and Riga’s CHP plants. The largest import volume is registered for Lithuania, to which the amount of exported energy equals the amount consumed in Latvia, Latvenergo explains.

LALRG secretary general: we have to reduce gap in quality of life for EU citizens

Ever since Latvia joined the European Union, its population has declined 14%. The most significant decline was caused by the departure of residents of working age to other EU member states. Because of that, the population in eastern regions of Latvia has declined 23%.

Czechs up for close race in this week's presidential run-off

As the Czech Republic nears the second round of its presidential election this weekend, sociologists estimate that the pro-Western academic Jiří Drahoš enjoys a somewhat larger support than the incumbent Miloš Zeman, who easily won the first round.

Producer price level in Latvia’s industry up 3.1%

Compared to December 2016, the level of producer prices in Latvian industry rose by 3.1 % in December 2017. Prices of products sold on the domestic market rose by 3.0 %, while prices of exported products went up by 3.3 %. Prices of products exported to euro area countries grew by 3.8 %, whereas prices of products exported to non-euro area countries rose by 2.9 %.

MEP: an even greater UGF dominance would slow down Latvia’s development

If the Union of Greens and Farmers (UGF) gains an even greater presence in the upcoming Saeima elections, Latvia’s continued development would suffer, said member of the European Parliament Artis Pabriks in an interview to 900 seconds programme of LNT.

Tax reform challenge in January: labour tax recalculation

2018 commenced for Latvia with a historical tax reform and conceptual changes, significantly affecting everyday work performed by businessmen, employers and accountants. One of the changes financial specialists have to remember when calculating wages for January is the one for personal income tax, which also includes changes for state social insurance fees and solidarity tax, BNN was told by accounting experts.

Total tax debts in Latvia reach 1.217 billion euros at beginning of 2018

At the beginning of the year, total tax debts in Latvia, including existing debts, halted debts and debts with extended repayment debts, reached EUR 1.217 billion, which is 3% less when compared with the previous month, as reported by the State Revenue Service.

Estonia emphasises animal welfare as demand for animal food products grows

Although the demand for food products from animals is increasing, attention should be paid both animal welfare and sustainability in agriculture, Estonia's Minister for Rural Affairs Tarmo Tamm has stated.

Latvia hopes to recover its status as a country free of swine fever

There is hope that Latvia may yet recover its status of a country free of swine fever, says Food and Veterinary Service’s (FVS) Animal Infections Monitoring Department lead expert Mārtiņš Seržants.

Estonia prepares to inform population of actions in case of emergency or war

Estonia is preparing a brochure on how its population should act in case of major crisis or war.

De Facto: international lawsuit against Latvia is associated with infamous Winergy case

Norvik Bank’s lawsuit against Latvian state in the international court of arbitration in Washington is associated with Winergy wind park business, as reported by De Facto programme of LTV. The bank has yet to announce the amount of money it wishes to enforce from the state

German Social Democrats vote to U-turn on coalition talks with Merkel's conservatives

In Germany, where four months after its federal parliamentary elections there is still no government, the Social Democrats have voted to enter coalition talks with the conservatives led by German Chancellor Angela Merkel.

Would you be ready to boycott something in your life?

View Results

Loading ... Loading ...

Polls Archive

Category feed: Feed: