Annual inflation rate about 3% will not remain for long. It is expected to decline closer to the end of the year, making general inflation rate around 2.5%. It is also expected that employment in the country will rise. Employers will have to put more efforts into finding employers and increase wages, Swedbank economist Linda Vildava shares her prediction for the near future.
After rapid growth in previous months prices in February had grown by only 0.4%. DNB Bank’s economist Peteris Strautins explained that it is standard practice for winter. «I would say inflation level was very typical for February. Last year, however, priced in February grew by only 0.1% after a 0.5% decline in January. The so-called base effect ensured that inflation level in January would grow to 3.3% after the 2.9% level recorded in August».
In regards to price changes, Swedbank economist Linda Vildava says: «Prices of goods increase at the expense of prices of raw materials – oil and food. Those prices were significantly lower in the first half of last year than they are now. Because no rapid rise of oil and food prices is expected, the effect of prices of raw materials will start to decline slowly as the year continues.»
DNB Bank’s expert notes that food and fuel price increases were expected. «They are directly linked to developments on the regional fresh milk market and world raw materials market. Consumer price rise in this category simply had to happen, because no one will compensate raw material price changes to buyers. Another interesting piece of news can be considered the communication services price rise of 6.3% over the course of the year, in clear association with the deepening of the European single market in this industry, which improves price convergence for operators in a good way.»
«Food was responsible for nearly half of contribution to annual inflation in February. Over the course of February, prices increased by 6.1%. This is why there are thoughts that certain types of income, such as pension level, should be more tightly tied to food products, not the entire consumer basket. It would be logical, but there are complications. Food prices do not just change upwards, they also change downwards,» DNB Bank economist comments on food products.
«Any politician that would allow automatic income correcting mechanism to work or oppose the initiative to not allow this mechanism to work would be declared a public enemy. There is no doubt that wages and pensions should grow,» Strautins says.
«The point of economic development is income rise, but it is not the main objective. This rise should be tied to a logical and politically predictable mechanism. We would definitely benefit from higher future wage growth influence on pensions than the one provided by the currently working mechanism. Pensioners have the moral right to enjoy rise of welfare the nation can achieve after they retire. To ensure changes can be performed, it is necessary to organize measures that would change the ration of working people and pensioners,» Strautins notes.
Swedbank economist mentions that it is possible to expect faster economic growth this year. «This is also because of influx of EU funds, more rapid employment rise and faster decline of unemployment when compared with last year. As a result, businessmen will have to put more effort into finding employees. They will likely have to increase wages. Because of that, the pressure of internal factors on prices may increase somewhat and be reflected in more rapid service price growth. Annual inflation rate above 3% will not remain for long. It is expected that it will decline by half by the end of the year, making the average inflation level around 2.5%.»
«Actual income in Latvia increase over longer periods of time regardless of price fluctuations. Thanks to that, food cost proportion in the consumer basket declines for all major social groups. The only reducer of long-term poverty risks is economic development, not careful manipulations with income of certain social groups,» notes DNB Bank economist.