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Saturday 19.08.2017 | Name days: Melānija, Imanta
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Swedbank: inflation can hit 4.2%

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RUGiven the rapid global raw material price gains and the planned tax rises in the middle of the year, inflation might hit 4.2% this year, Swedbank economists say.

This supply-side driven inflation, namely, triggered by companies costs is expected to subside in 2012. However, due to the comparatively high inflation expectancy rate and gradual household consumption recovery, the drop will be quite slow, with the average consumer price inflation forming 2.6%.

Inflation adds to the existing social problems and highlights competitiveness issues. Moreover, there are risks 2013 inflation will be too high to meet the Maastricht criteria and be admitted to the eurozone. Thus the Finance Minister’s just recently proposed plan to limit inflation is absolutely necessary. Unfortunately, the current proposal centers around limiting wage increases, which is not a solution efficient enough. The government’s activities should be directed towards three much more broader aspects, Swedbank economist Martins Kazaks says.

First of all, up to the point we join the eurozone, taxes with a direct impact on consumer price index, for example, the VAT or the excise, must not be raised. Secondly, it is reducing inflation inertia and promoting competition – creation of a more transparent price formation mechanism, introduction of the principle «money follows service receivers» in public and municipal services, as well as transparent public and municipal procurements. Thirdly, it is energy efficiency boost, so that tariffs need not to be raised. In order the government had an agreement with the social and other partners, they need a very strong political will on what, when and how will be done in terms of consolidation and structural reforms. Moreover, politicians must strictly follow this agreement to recover the trust of the society, economist Lija Strašuna stresses.

Asked for the consequences of Latvia failing to join the eurozone in 2014, Kazaks points out it is not going to be anything tragical. However, in that case investments would come more difficult. It is already apparent Estonia has surpassed other Baltic countries in terms of investments that mean stability and security for people that are to place their money in that particular state.

If Latvia does not access the eurozone in 2014, Lithuania will. Consequently, investors will opt for Estonia and Lithuania and it will become even more complex for Latvia to attract investments, so we will have to think of ways to attract investors with something not to be found neither in Estonia nor in Lithuania, Kazaks says.


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  1. qimono says:

    That’s too much to meet M criteria!

    Thumb up 0 Thumb down 0

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