RIGA - Inflation continues to dog Latvia, as consumer prices, fueled mainly by foodstuffs, edged up 0.2 percent in July compared with June, the statistics office reported on Aug. 9. Thus on a year-on-year basis, the country's consumer price index was up 6.7 percent, the highest annual rate since December 1997, when it was 7 percent.
The office reported that the July price level was mainly affected by a rise in food prices by 1.2 percent, as prices for grain, beef, sausages, cheese, butter, fruit, non-alcoholic beverages, as well as some new harvest goods like carrots, beets and onions were up.
The cost for natural gas increased 11.7 percent in July, while housing maintenance costs and renovation material prices also climbed, the office reported.
A drop in prices was seen on clothing and footwear (4.1 percent), as well as for new potatoes, tomatoes, cucumbers, paprika and margarine. Compared with July 2003, consumer prices were up 6.7 percent, including a 6.9 percent rise for goods and 5.9 percent for services. EU accession and rising energy costs are most often cited as the leading culprits for inflation.
Also, compared with its Baltic neighbors, the situation is not flattering for Latvia. In Estonia prices fell (0.3 percent) in July, and in Lithuania they stayed even. Year-on-year inflation in Estonia was 4.1 percent and 1.9 percent in Lithuania.
Inflationary fears in Latvia have even prodded the International Monetary Fund to speak out, saying this week that the recent amendments to the 2004 budget would raise spending and that the government of Prime Minister Indulis Emsis should use additional budget revenues to cut the deficit instead.
Latvia's Parliament was set to start discussing amendments to this year's budget this week after the government approved a spending of 54.4 million lats (81.1 million euros) thanks to additional tax revenues.
However, the deficit should remain at 2 percent of GDP.
In its report on Latvian development, the IMF warned that the current rate of inflation, coupled with a significant rise in debt, could increase risks involving external factors.
"Although there is a clear need for investments toward infrastructure, the IMF directors urge that the opportunities provided by a good macroeconomic environment be used to provide for a tougher fiscal policy, thus preventing the potential threat of economic overheating," the report stated.
The bank also said that in order to reach the EU's living standards, Latvia must sustain macroeconomic stability and a flexible labor market, as well as continue reforms promoting the country's growth and competitiveness.
The IMF also lauded decisions regarding tougher banking oversight, since the rising amount of credits and the large amount of non-resident deposits demands much tougher control.