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Latvian inflation shows no sign of abating

Feb 15, 2006
Staff and wire reports

RIGA - Consumer prices in Latvia continued their stratospheric climb, growing 1.1 percent month-on-month from December 2005 to January 2006, while annual inflation reached 7.5 percent.


The Latvian Statistics Bureau stated that January consumer prices were influenced mainly by increases in vegetables, alcohol and utilities, as well as declining prices of clothing and footwear. Vegetable prices climbed 22.6 percent in particular, with cucumbers, tomatoes and paprika seeing the steepest price hikes. Heating rose 3.4 percent in January, natural gas 19.1 percent and water 3 percent. New tariffs pushed up postal services by 48.2 percent as well.

The statistics bureau noted that consumer price growth this January was steeper than in January 2005, when the average price level rose by 0.5 percent from December 2004. Meanwhile, over the past year the price of goods increased 7.8 percent and services 6.6 percent.

Prime Minister Aigars Kalvitis told reporters last week that the steep growth in prices was the result of a postal tariff hike and other one-time factors, but it was the rise in food and fuel prices that remained the main driving force behind the inflation. He said the government had no other tools to curb inflation except cutting the budget deficit and keeping taxes flat.

His economics advisor, Aigars Stokenbergs, said that consumer price growth in January had been anticipated and was due to several one-time factors like an excise tax increase for tobacco and a natural gas tariff rise.

Analysts said the price-rise should level off in February, as the effects of January revision and tariff-hikes wears off. Andris Vilks, an analyst at SEB Latvijas Unibanka, said that January inflation was slightly higher than expected, adding that it was too early to say whether inflation this year would slow compared with 2005.

"The picture will become clearer after this spring. In the next few months, inflation should not be any higher than 0.5-0.7 percent. If it is, inflation in 2006 will be on last year's level," he told the Baltic News Service.

Hansabanka senior analyst Liene Kule said inflation in the coming months was unlikely to be as steep as in January, but still as high as 0.5-0.6 percent. "We expect that average annual inflation this year won't be much lower than in 2005, when it was about 6.1 percent. Average annual inflation will remain above 4 percent by mid-2007, which is the deadline for Latvia to meet all the Maastricht criteria for euro adoption. This is the main reason why we feel skeptical about the official plan to switch to the euro in 2008," said Kule.
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