Latvian inflation going strong, GDP growth hits double-digits

  • 2005-12-14
  • By TBT staff
RIGA - Annual inflation in Latvia amounted to 7.4 percent at the end of November, while GDP growth over the first nine months reached 10.1. Analysts predict it might stay in double-digit territory until the end of 2006.

The national statistics office reported that consumer prices were up 0.3 percent in November compared with October. Year-on-year, prices for goods increased 7.7 percent, while those for services grew 6.6 percent.

The statistics office said that growing prices for bread, fruit and heating energy, as well as falling fuel prices, had the greatest impact on consumer price changes in November.

Inflation continues to vex Latvia, where it is the highest among all 25 EU member states. Still, the November statistics were slightly improved from October's year-on-year result, and many government officials were quick to see this as a sign that the worst was over.

Aigars Stokenbergs, economic advisor to Prime Minister Aigars Kalvitis, told the Baltic News Service that the November slowdown indicated a drift toward stabilization. "It seems that businessmen had included the surcharges brought about by the increased energy prices in cost prices. So unless there is a drastic surge in natural gas prices, next year inflation will have a tendency to slow down," he said.

Finance Minister Oskars Spurdzins said that the small increase in consumer prices in November was encouraging. "Inflation still is very high, but its tendency not to climb further and to remain on the previous level can be seen as positive," he said, adding that it wasn't ruled out that the trend could continue.

"If we manage to maintain the existing energy prices and if the world's fuel price declines or stays at its present level, the inflation rate might also stop rising," the finance minister said.

In the meantime, GDP skyrocketed 10.1 percent in the first nine months of the year, while third quarter growth alone was 11.4 percent. The stellar growth was facilitated by a 17.3 percent increase in trade, which accounts for 19.6 percent of GDP, and 16.3 percent expansion of the transport and communications sector, which comprises 16.1 percent of the national economy.

Analysts did not rule out that economic growth would stay above the 10 percent threshold for the calendar year.

"The income level is rising rapidly in general, contributing to growth of domestic industries," Hansabanka senior analyst Liene Kule said.

SEB Unibanka analyst Andris Vilks told the Baltic News Service that the GDP growth was "indeed very high and even slightly above the expected level," giving reason for serious thought. "Apparently, economic growth in 2005 could be 9.5 's 10.5 percent. And what can we anticipate next year, if this year's basis is so high 's 7 's 8 percent? And how can we think about lower inflation that the EU expects from us?" he asked.

He said that Latvia was facing steep economic growth, high inflation, a fierce battle over labor force, social tension and quickly approaching the average EU economic and welfare level.

Based on November data, inflation in Estonia rose 3.9 percent and in Lithuania 2.8 percent