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Monday 18.06.2018 | Name days: Madis, Alberts

Economists: modest price level increase to be expected in future

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The consumer prices have resumed the path of growth and moderate inflation can be expected in the future, yet there are no grounds for concerns about a significant peak in the consumer prices in the nearest future, consider the economists.

SEB banka Economist Dainis Gašpuitis:

Already in early 2010, the consumer prices have resumed the path of growth and this tendency indicates further, yet a modest, increase in the price level. Certain price shocks are possible in separate product groups, although this will not leave a significant impact on the overall price level. At the same time, it should be concluded that there are factors that will continue to propel the inflation and includes many uncertainties in its further development. The development of the major countries’ economy, as well as their currency fluctuations, will play an important role. The growth rates of the developing countries (Brazil, Russia, China,India) will also be important.

The biggest price increases can be expected in the food product group. The price changes will also be affected by the possible adjustments in the taxes (VAT, excise, etc.). Similarly, the local economic recovery will gradually foster the price gains. It cannot be excluded that the tax raise expectations and other processes may have additional impact on the price gains. Next year the price adjustments will take place due to the electricity price increase, which is significant to the consumer basket. It is difficult to predict the indirect effect of growth on the prices of goods and services.

Nordea banka Senior Economist Andris Strazds

In accordance with the expectations, the consumer prices in October have slightly increased. The fact that the increase of the Consumer Price Index cannot be linked to a significant price boost in one particular product group, but is formed from a small increase in prices of different products indicate that the inhabitants’ amount of money gradually increases from a very low level that was recorded last winter and spring. This is also confirmed by the increase in the retail trade volume during the recent months. Alongside with the growing demand, entrepreneurs gradually start to raise the prices. At the same time, it is difficult to imagine that demand could increase very rapidly. Consequently, there are no grounds for the concerns about a significant consumer price jump in the nearest future.

Latvijas Krājbanka Investment Management Senior Analytic Olga Ertuganova:

Currently and in the near future, two opposite processes will determine the inflation dynamics. On the one hand – domestic consumption will remain very weak, which will restrict the price gains. On the other hand –forecasts about the price climb in so called commodities markets also raise concerns, which means surcharge of fuel and food products in Latvia. Similarly, if the announced proposals on the VAT rate increase are implemented, it will not be possible to avoid either the common price surge, or the severe drop in the purchasing power.

However, it should be noted that, although the inflation is again observed in the Latvian economy, there are no grounds to assume that it has returned to the pre-crisis levels. Nevertheless, keeping the inflation in the 2% range is already a great challenge now and, in case of changes in the VAT rate, it will be a completely impossible task.

DnB Nord banka Economist Pēteris Strautiņš:

The annual inflation rate has risen again in October, but it would be too hastily to worry about the price gains as a problem. Now Latvia’s economic growth rate is good, it is likely that in the third quarter it has even accelerated, yet there is «much space» for this increase to move before the collision with difficult barriers and sharp price rise is triggered. It is still rather «too cold» in the Latvian economy than «too hot». While the overall trends in the labour market are dictated by the companies, a rapid price increase is not possible, as the lat is imparted at the eurozone’s price stability. Excluding the possible tax raise effects, the inflation in Latvia should stay below the average EU level at least during next year.

However, it is not possible to exclude the possibility that the price drop in some parts of the consumer basket will even speed up.

Swedbank Senior Economist Lija Strašuna:

Considering the October of 2009, it is still possible to observe deflation in many product and services groups. At the same time, unfortunately, we can see that prices of the essential goods are growing, and this mostly affects the population with low income.

The bank’s consumer price forecast this year remains -1.2% (on average per year). Next year a moderate inflation is expected, as the consumer prices will increase on average by approximately 1.5%. Nonetheless, it should be emphasized that these forecasts are based on the assumption that the value added tax and excise tax rates will not change.

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  1. Boo says:

    Thank’s for so much opinions, they were useful.

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