RIGA - Construction prices catapulted 30 percent in Latvia in the first three months of 2007, the highest surge in 12 years, the Central Statistics Office announced April 18. Increases in building costs were also robust in Estonia, growing 15.6 percent in the first quarter year-on-year, while those in Lithuania rose 10.9 percent from February 2006 to February 2007, but Latvia's construction boom takes the cake when it comes to sparking inflation.
Construction workers' wages soared 52.8 percent, vehicle and equipment maintenance costs 33.3 percent and costs for materials 18.1 percent, the statistics office said.
In terms of segments, costs of constructing residential housing jumped 29.7 percent year-on-year, while those of agricultural and commercial building construction climbed 28.3 percent.
Economist Uldis Osis said construction costs could slow down in the second half of the year. He told the Baltic News Service that the number of EU-funded building projects is decreasing and new project implementation would only begin in 2008, thus weakening pressure on prices.
Still, Osis said that the price-rise would continue in Latvia until 2013, when the Baltic state absorbs all EU structural funds for the current financing period.
He did not exclude the possibility that cost increases would slow in the nearest years simply because consumers will not be able to finance the projects. "The costs cannot grow indefinitely," he said.
He said that banks may refuse to issue loans for projects that are too costly. Banks could reduce the amount of construction by issuing fewer loans, which is part of the government's anti-inflation plan.
Guntis Ravis, president of Skonto Buve, a construction company, said the rise in salaries was catastrophic and that the situation was incomprehensible.
Latvia has the fastest growing economy in the European Union 's GDP expanded 11.9 percent last year 's but it also has one of the highest rates of inflation. Consumer prices soared 8.5 percent annually as of the end of March.
The government, which introduced its inflation-reduction plan in March, could be equally culpable of fueling the fire if it proceeds with ambitious plans to proceed with three projects 's which will cost a total of approximately 300 million lats (428 million euros) 's that the Culture Ministry is lobbying for with all its might.
Central Bank President Ilmars Rimsevics has warned that the government would be wise not to pursue all three projects simultaneously as they would put additional pressure on the overheated construction market and hence inflation.
