Flash comment: Latvia - April 8, 2016
Annual CPI deflation at 0.6% in March
Consumer prices in March were by 0.7% higher compared with February and by 0.6% lower than a year ago. In a month prices increased mostly due to a seasonal increase in the prices of clothing (by 9.8%) and footwear (by 10.5%), and due to more expensive vegetables (up by 4.9%). After lastingly long and gradual decline, fuel prices have also risen slightly (0.2%).

Consumer prices rose rather swiftly in March last year as well, thus on an annual comparison there was still deflation – for the third consecutive month. Although the lowest point in oil price seems to be behind, the historic drops and historically low levels of the oil price are still the main reason why the consumer prices are decreasing and will continue to do so for the next 2-3 months. In March, fuel was by 16% cheaper, heating by 13% and gas by 11% cheaper than a year ago. Prices of goods were by 1.4% cheaper than a year ago.

 

Prices of services grew by 1.6% annually. Although price growth of some services has slowed recently (e.g., personal care, accommodation, culture), it does not seem that the domestic price pressures have eased considerably. Labour costs are still growing rather swiftly – wage growth has slowed slightly in the beginning of this year, yet was still rather fast and overall is expected to be about 6% this year. This will continue to gradually add to service price growth. Household consumption last year was still somewhat cautious (growing less than the income), and is likely to accelerate this year, which will also add to domestic price pressures.




Outlook

Total consumer price growth this year is expected to be only slightly above zero. Imported deflation will continue to limit the price growth (fuel, heating and gas will be cheaper than a year ago), while domestic factors (wage growth, robust consumption, introduction of VAT for housing management services) will support it.



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