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Monday 16.07.2018 | Name days: Hermīne, Estere
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Economists: price gains to stop next year

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RUGlobal price gains boost inflation, but we expect this will halt next year and prices will hit their maximum in 2011, dropping from the current 5% down to 2.5% in Latvia, Lithuania and 3% in Estonia, Swedbank economists say.

At the same time, they point out there are no grounds to expect two-digit inflation in Latvia, however, there are risks it will climb at a faster pace than forecast, maybe even exceeding 2.5% next year, but definitely not hitting 10%.

The situation has changed, it is no longer the same as in 2007 when consumption was pushed up. The fiscal policy has changed its focus as well and also banks have grown more cautious. The fiscal policy is more adequate, it will not propel such sharp gains as before the crisis. It means the inflation in Latvia will not hit that high because of internal factors – consumption is still poor and no rapid salary rises are expected, says Martins Kazaks, Swedbank economist.

Considering global effects, the situation becomes less clear – if money influx boosts global inflation, unfortunately, it will climb also in Latvia, he adds.

However, given the internal factors, there are no reasons for the inflation to climb at a fast pace. Similarly, also further tax increases would bring no revenue to the state budget, thus, most likely there will be no surprises from the part of the government, the Kazaks points out.

Inflation level can be considered significant from a number of reasons. From the perspective of social politics, inflation climb hits those already in difficulties. The second thing is compliance with the Maastricht criteria to introduce the euro, which, in turn, will contribute to the economic development as it is already observed in Estonia, Lija Strasuna, Swedbank economist stresses.

She also adds food, transport and housing costs boost inflation in Latvia. Also, the Baltics spend the most on prime necessity goods, compared to the eurozone, which also pushes up inflation. Global prices play the key role in climbing inflation, accompanied by tax increases in Latvia.

Food price gains added to the inflation in the Baltics more than in the rest of Europe, as they grew faster than in the eurozone, although having been impacted by external factors – global price gains. Similarly, Baltic prices fluctuate more.

Consequently, end prices were surcharged more than the growing costs of raw material accounted for. This suggests there are problems in the internal competition, Strasuna says.

5% is not that high inflation, however, we should stabilize it if we want to introduce the euro, economists say.


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