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Monday 23.07.2018 | Name days: Magda, Magone, Mērija
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Economist: October’s producer prices affect price rise in manufacturing

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Price increase in October was mainly dictated by production cost rises in several manufacturing industry areas. Also, a more rapid increase was noted under the assortment effect in the products of export intended industries, notes Bank of Latvia Economist Daina Paula.

She notes that this difference could mean both the different assortment of products intended for those markets, where different raw materials are used in manufacturing and a different price setting policy on different markets, affecting purchasing power. This tendency also confirms what was said previously – that internal market does not exhibit signs that would state a possible increase of inflation in the near future.

Manufacturing prices increased for clothing, beverages and food product manufacturing. The price rise of the latter can be linked to price increases on raw materials, because the increase on food prices, which has already come to the global market, is now gradually coming to Latvia’s producer prices.

Meanwhile the producer price in general is most likely not related with workforce dynamics. Firstly, the increase of work productivity is quite rapid, so this increase is well justified and does not make the prices of produced units more expensive. Secondly, the lack of workforce, as a notable production delaying factor, is noted in several manufacturing sub-sectors, says Paula.

The economist notes that, according to the European Commission’s conjunctive survey in Q4, the lack of workforce is mentioned by 8.7% of manufacturing businessmen as the main business delaying factor and it is mainly noted in the manufacturing of durable products: clothing, furniture and vehicle manufacturing (24.3%, 16.5% and 14.5%). Workforce lack in food production and woodworking is mentioned much more rarely. Among the industries that have at least 10% of cases, only clothing production has had an increase of producer prices, while other industries (furniture, vehicle, electronic devices, chemical product and metallurgy) experienced either a reduction or nothing at all in October.

“As it was expected, producer prices in energy production dropped slightly, because, even though resource prices remain high in the world and Latvia’s energy production is dependent on imported energy resources, resource prices no longer showed such expressed increase tendencies as before and the largest energy producers were not in a hurry to issue new tariff plans or increase them on current plans (natural gas or heating),” – says the economist.

Meanwhile, those energy producers that required or had an opportunity to change tariffs did not do it up until the very beginning of the heating season. Therefore the Social Services Regulation Commission gradually approved new tariffs in many Latvian cities and regions. Tariffs will gradually affect producer prices and in many cases can actually equalize them in either decreasing or increasing effect on general prices, notes Paula.

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