Flash comment: Latvia - February 10, 2017
Annual inflation close to 3% in January

Consumer prices increased by 0.1% in January compared to December last year and were 2.9% higher than in January 2016. This marks the highest annual monthly inflation rate since mid-2011. 

1.9% higher food prices and 4.1% higher fuel prices contributed positively to monthly inflation while 9.3% cheaper clothing and footwear and 1% cheaper services of recreation and culture limited inflation growth. On a yearly basis, food and fuel prices were the main drivers of inflation. In January this year, compared to January 2016, food prices increased by 6.9%, reflecting growing global agricultural commodity prices. Fuel prices increased by 14.8% annually. This is a result of a significant fall in energy commodity prices in the beginning of 2016, which have moderately recovered now. 

Central Statistical Bureau has also revised household consumer basket weights for goods and services. Goods account for around 70% of consumption while services – for around 30%. As wages have been growing and consumer price growth was moderate in 2016, weight of food in the consumer basket continued to decline while the weight of services increased. Latvian consumers have been able to spend relatively more of their income on recreation and culture (the share of recreational and cultural services in the consumer basket is now at the level of 2009) as well as sleeping and eating out. It could be a sign that Latvian welfare has improved. 

Outlook 

Our forecast for average annual inflation in 2017 is 2.5% which is more than we have been used to in the last couple of years. But as wage growth remains fairly strong (around 5-6%), household purchasing power will continue to improve despite higher inflation.


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

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