'Undulation' of Latvia's annual inflation to intensify in coming months - bank analysts

RIGA - The 'undulation' of Latvia's annual inflation will intensify in the coming months, the surveyed bank analysts told LETA, commenting on November's consumer price data released on Monday.

Bank of Latvia economist Ieva Opmane told LETA that the annual inflation rate in Latvia has been below 2 percent for a little over a year, and only this November it rose slightly above 2 percent.

At the same time, Opmane noted that inflation could be described as a more mathematical phenomenon, as it is calculated as the change in prices over a year, but that psychologically, the price level might be easier to understand than inflation.

"When you walk into a shop and see your favorite products priced much higher than they were before the pandemic, it is hard to understand and believe the low inflation rates. However, as the sharpest price increases occurred in 2022, not last year, the price level has changed, but the inflation rate is low at the moment," Opmane said.

She explained that it would take deflation to bring the price level down to the pre-pandemic level, but deflation is not being projected at the moment and it would also be unhealthy for the economy.

Dainis Gaspuitis, a macroeconomics expert at SEB Banka, said that we are currently seeing an "undulation" of inflation, which is likely to intensify in the coming months.

The macroeconomics expert predicted that Latvia's annual inflation rate might hit 3 percent in December before it starts receding again.

"Inflation has now reached a level that the European Central Bank (ECB) considers low enough to deliver the benefits of low inflation. However, the majority of the population is of a different opinion and their perception of inflation is much higher," Gaspuitis said.

He noted that lower energy prices are still keeping inflation down, while prices in other segments continue to rise at different rates. Moreover, price hikes on food, health and utility services are perceived especially painfully.

"Even though wage growth is strengthening purchasing power, the process is very uneven. Therefore, it is not only in Latvia that the fatigue of high inflation is being felt, which is also reflected in political processes," said Gaspuitis.

Luminor Bank economist Peteris Strautiņš told LETA that consumer prices have had another quiet month and the annual inflation rate is very close to the monetary policy target.

At the same time, he also noted that there are commodities whose prices have been rising sharply.

"Food commodity prices are broadly stable, but stock market developments this year have been very damaging to the availability of a number of products that make life more palatable," said Strautins.

S&P's GSCI Food Index fell by a seventh in euro terms between the end of May and the end of August, and has since returned to the levels characteristic of spring. The index is still about a quarter lower than it was in the spring of 2022, so there is little cause for alarm, Strautins believes.

"Commodity costs for basic food products are moderate, the only exception being butter, which is on an all-time high price curve that peaked at the end of August," Strautins added.

As reported, the latest data of the Central Statistical Bureau show that in November 2024, compared to November 2023, the average level of consumer prices increased by 2.2 percent.