PM Kalvitis: inflation stabilized last year

  • 2006-01-11
  • Staff and wire reports
RIGA - Consumer prices in Latvia grew 6.7 percent in 2005 's the highest rate in the European Union 's propelled mainly by increases in food and fuel prices, the central statistics office reported. In December, consumer prices rose 7 percent year-on-year, including 7 percent for goods and 6.9 percent for services.

Prime Minister Aigars Kalvitis put a spin on the news by saying that Latvia's inflationary rate had "stabilized" last year.

His spokeman, Arno Pjatkins, told the Baltic News Service that, in the prime minister's opinion, inflation could slow to as much as 5.5 percent in 2006 if "nothing extraordinary happens on international energy markets."

Finance Minister Oskars Spurdzins, who together with Kalvitis is a member of the People's Party, said he also thinks that inflation stabilized last year. He told reporters on Jan. 9 that the government had done everything it could to reduce the price-rise, though admitting it had not carried out any extraordinary measures to stop inflation for the sake of sustaining Latvia's stellar economic expansion, which is also likely to be the highest in the EU.

Spurdzins said that the government decreased the budget deficit, which is expected to be about 1 percent of the gross domestic product as compared to the 1.68 percent as initially planned.

Analysts, in the meantime, blasted the government for not doing enough to rein in inflation. Zigurds Vaikulis, head of Parex Asset Management's market analysis department, told the Baltic News Service that so far "the government's role in curbing inflation has been the same as in ensuring that the Daugava River flows to the sea."

"The government could be credited to a certain degree for the decline in the prices of telecommunication services, although the reform of the telecommunications segment was more a logical necessity and less a government initiative. The rest is rhetoric," he said.

Vaikulis noted that the decision not to impose the value added tax on heating was the only real measure the government has taken to slow down inflation.

He suggested the government might show its good will by cutting budget spending amid the current rapid economic growth, though even a reduction in spending by a few million lats might not be enough.

Andris Vilks, a senior analyst from SEB Latvijas Unibanka, said that the state needed to boost competition in all sectors and assess growth of regulated tariffs in order to protect individuals and companies from unnecessary expenditures.

"I would also like to see a thorough analysis from the government or state institutions to answer the question as to why Lithuania and Estonia are seeing much slower price hikes. In many groups of goods and services these differences are huge," Vilks said.

Liene Kule, a senior analyst at Latvia's Hansabanka, also said the government should think about how to curb inflation and that this could not be seen as a short-term task. "Considering that the adoption of the euro will most probably be put off for a couple of years, it is necessary to facilitate price stability in several years perspective," she said. "First, it is necessary to draw up and implement a balanced budget, and secondly, it is necessary to develop a competition-promoting business environment."

Aija Zigure, head of the National Statistics Office, said that the consumer price index was likely to increase 5.5 's 6.0 percent this year. She noted there are several factors that might influence consumer prices, and that this list "is not short."

For instance, Latvijas Gaze, the natural gas company, has raised its gas tariffs at the start of the year, while the maximum rent that owners of denationalized apartment buildings are entitled to charge their tenants has also been increased.

Also, prices for electricity, cement and electric equipment, which can become more expensive due to the new natural resources tax, are also expected to increase this year, Zigure explained.

She said that the general impact of these and other factors on the consumer price index is difficult to forecast.

The Economy Ministry also expects consumer prices to increase by 5 percent this year.