Flash comment: Latvia - December 8, 2015
Annual CPI inflation at 0% in November
  • Goods’ prices down by 0.8%, prices of services up by moderate 2.2%
  • Prices stable in monthly terms
  • The average inflation is expected to accelerate to 1.5% in 2016 and to 2.3% in 2017

Consumer prices in November were stable both compared to previous month and to previous year. In monthly terms, prices were mainly supported by a seasonal increase in the prices of vegetables (12.4%). Yet the increase was compensated by cheaper tourism services (-6.8%), clothing and footwear (-1.1%) and goods for household maintenance (-2.1%). For the fifth consecutive month price growth was also limited by cheaper fuel – the decline in November, however, was rather modest – 0.7%.


In annual terms, prices of services continued to grow moderately (2.2%), including hairdressing (3.5%) and catering (2.8%). But the overall price growth was still “held” at zero by cheaper import prices – fuel (by 15.8%, compared to a year ago), heating (13.6%) and gas (9.5%). Food prices remained flat, but with considerable differences among product groups – e.g., prices of milk products were by 6.4% cheaper while vegetables by 7.8% more expensive than a year ago.


The growth-limiting effect from global commodity prices will start to gradually ease going forward. Yet a sharp increase in the global commodity prices in the nearest future is not expected. As for oil, the battle for market shares is still ongoing and the largest producers are not keen to cut the production. OPEC, for instance, in the recent meeting has announced that it will not reduce its production quotas. Largest producers outside OPEC, e.g. Russia, have not expressed willingness to cut the production as well. As for shale oil, although the number of drills has dropped significantly, the actual oil output has declined only slightly – due to improving technologies and productivity. Overall, the oil supply will still exceed the demand in the nearest future, thus creating a downward pressure on price.


Outlook
With the global commodity price development playing a less important role, consumer prices in Latvia will be increasingly dependent on domestic factors, for instance, strong wage growth and excise tax hikes for fuel products. We expect that the prices will grow by 1.5% next year and by 2.3% in 2017.

 


For more information please contact Mr. Andrejs Semjonovs, +371 67445844, andrejs.semjonovs@swedbank.lv
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