Latvia to retain inflationary hiccups in 2005

  • 2005-01-12
  • Baltic News Service
RIGA - Inflation bloated to 6.2 percent in Latvia last year, by far the highest in the Baltics and one of the highest among all EU members, but officials are hoping that they can rein it to around 4 percent this year.

Statistics office chief Aija Zeigure told reporters on Jan. 10 that inflation would amount to 4 percent - 5 percent this year. "There will be inflation, but this is an admissible level given the current growth rates, investment and inflow of EU funds," said Zeigure.

Commenting last year's result, Finance Minister Oskars Spurdzins said, "Of course, this is not a low indicator, and it is neither surprising nor unexpected either, since the past was a hard year, with several things happening at the same time." Among factors he cited were EU accession, higher energy prices and the fall in the lat vis-?-vis the euro.

Since several of these factors won't be repeated this year - namely, accession and a falling lat - the government is sanguine that the uncontrollable price-rise won't repeat itself. Also, a trimmed budget deficit for 2005 - from 2 percent to 1.68 percent - should also help, said Spurdzins.

Other factors, however, are working against the new Cabinet's plans. The main one is the rapid growth in lending, and the finance minister seemed at odds about what to do to prevent this from spiraling out of control. "No one can ban the public from better living," he said.

He also complained about retail fuel prices and even suggested the competition council study the market. "Something must be wrong with fuel prices. Although prices are declining throughout the world, they are not declining in Latvia. But after an objective look, [one would think] they should be lower," Spurdzins said.

He said that he did not possess any evidence of a cartel agreement among retail fuel companies but suggested the competition council investigate to see if there was some kind of agreement among traders.

The last time Latvia saw such a high inflation was in 1997. In 2003 growth in the consumer price index amounted to 2.9 percent.

Analysts expect prices to grow more slowly this year, with average annual inflation estimated at around 5 percent and annual inflation - measured from December to December - coming in at 4 percent.

"It is most likely that inflation will slow down only a little, and the general price trend will be upward," Liene Kule, senior analyst at Hansabanka's financial market unit, said.

She thinks that average inflation will be around 5 percent in 2005, but annual inflation in December 2005 against December 2004 will be slightly below 4 percent.

Andris Vilks, market analyst at Latvijas Unibanka, was more pessimistic and estimated that average inflation would reach 5.4 percent and December-December inflation a little above 4 percent.

Parex Asset Management predicted that inflationary pressure would ease up this year, with annual growth around 4.2 - 4.3 percent while average inflation at 5.2 percent.

Estonian inflation amounted to 3 percent in 2004 while Lithuania had the lowest in the Baltics with 2.9 percent, each country's statistics office reported this week.