Flash comment: Latvia - May 10, 2016
Annual CPI deflation at 0.8% in April
In April consumer prices increased by 0.4%, mostly owing to seasonal increase in the prices of clothing and footwear (by 6.2%) and more expensive fuel (3.2%).

Prices were still by 0.8% lower than a year ago, and currently it seems that the deflation might last for at least the first half of this year. Price growth is still hampered mostly by “imported deflation” – global oil prices have recovered somewhat recently, yet the prolonged declines of the previous months are still feeding into prices. The heating tariffs, which are dependent on the oil price dynamics in the last 9 months, decreased in April (and were by 15% lower than a year ago) and according to the current forecasts, also in May. In July, the household gas tariffs are likely to be decreased as well. Fuel was by 13% cheaper than a year ago. This direct impact from fallen oil prices reduced the annual inflation in April by 1.3 percentage points. There is indirect impact as well –e.g., it seems that the lower energy costs for enterprises are gradually reflected in slower service price growth. Prices of services grew by 0.9% annually (compared to 2.6% last year on average). Prices of food were largely unchanged compared to last year.



Outlook
Domestic price pressures have not eased considerably. Labour costs are still growing rather swiftly – wage growth has slowed slightly in the beginning of this year, yet seems that will be around quite strong 6% this year. The household consumption also continues to grow. This will continue to gradually support price growth. Introduction of VAT for housing management services will also add to the overall inflation. We forecast the average inflation to be 0.2% this year.



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