Flash comment: Latvia - December 8, 2016
Annual consumer price growth accelerates to 1.3% in November

Consumer prices increased by 0.2% in November compared to October this year and were 1.3% higher than in November 2015. This marks the third consecutive month of positive annual inflation and the second – with annual inflation of at least 1%. 

On a monthly basis, food prices contributed the most to the increase. They rose by 1.3%, including 3.5% increase in the milk price and 5.0% increase in vegetable prices. 1.8% increase in the fuel price also drove inflation higher. 

On a yearly basis, increasing by 2.9%, food prices were the main drivers of annual inflation. A jump in the purchase price of milk a couple of months ago has translated in higher prices for consumers. Milk prices rose by 2.2%, the first increase this year. At the same time, heating prices are holding back a further increase in inflation. In November they decreased by 8.2%. While heating prices will continue to curb inflation, the effect could possibly weaken from the next month onwards. 

For two months now prices of services and goods are moving in the same direction. Services’ prices rose by 2.9% yoy. However, weakening domestic pressures, namely, even slower annual wage growth in Q3, could reduce the pace of service price growth further on. Goods’ prices increased by 0.6% yoy as commodity prices are recovering. Currently oil price is in the spotlight. With the OPEC (and Russian) decision to cut oil production, the oil price reached USD 55 at the beginning of December, the highest level in a year and a half (it has reverted somewhat since then). Although OPEC decision sends a strong signal in attempts to balance supply and demand, some concerns persist. For example, within the OPEC, some countries (e.g. Libya and Nigeria) are exempt from production cuts. These countries and some non-OPEC countries most likely will not cut production; quite the opposite – increase it to some extent. In any case, inflation will rise at the beginning of next year due to base effects, i.e. oil price was extremely low at the beginning of this year. But if the oil price increases, it could put additional upside pressure on inflation. 

Outlook

Average annual inflation will reach 0.1-0.2% while our forecast for next year’s inflation is 2.5%.


For more information please contact Ms. Linda Vildava, +371 67444213, linda.vildava@swedbank.lv 

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