RIGA - The first macroeconomic results began trickling in during the first days of 2007, showing that unemployment is steadily edging down while growth in consumer prices continues to remain at high levels.
Soaring prices for natural gas and tight labor markets are likely to conspire against any inflation-reducing efforts in the three Baltic states this year and keep the countries' hopes to join the eurozone on ice, analysts said.
In Estonia, the Statistical Office reported on Jan. 8 that the consumer price index rose 5.1 percent from December 2005 to December 2006, the highest year-on-year increase since September 2001. Average annual inflation amounted to 4.4 percent.
The statistics office said that consumer prices were most affected by increases in housing expenses and prices for gas and motor fuel. Housing costs rose 10.4 percent over the year, while food and beverages jumped 5.1 percent.
In Latvia, the national statistics office announced on Jan. 9 that average annual price growth in 2006 was 6.5 percent. From December to December, the consumer price index rose 6.8 percent.
It is unclear whether this will be the highest in the 25-member EU (excluding Romania and Bulgaria), as the average annual growth rate in Hungary, where prices have risen dramatically in recent months, is expected to reach 8 percent this year.
As in neighboring Estonia, price increases for foodstuffs, services and housing maintenance were the chief catalysts of Latvia's daunting inflation.
Lithuania has yet to announce its indicators for 2006.
The Baltic results contrast with the average 1.9 percent annual inflation in the eurozone, according to preliminary estimates released by Eurostat last week. The zone now contains 13 member states after Slovenia, which joined the EU in 2004, adopted the common currency this month.
Regarding unemployment, the Baltics are witnessing a rapid decline in its number of jobless residents. Estonia saw the steepest relative decline in unemployment throughout the European Union, from 7.4 to 4.5 percent, Eurostat reported based on November 2006 data.
Overall, Estonia had the fourth lowest unemployment rate in the union, behind Denmark, Netherlands and Ireland (see table below).
In Latvia, unemployment in November was 6.2 percent and in Lithuania 5.6 percent. The average rate of joblessness in the EU25 was 7.7 percent in November, with Poland (13.6 percent), Slovakia (12.3 percent) and Greece (8.7 percent) leading the pack.
The two trends 's rising prices and rising employment 's naturally go hand-in-hand, and in 2007 they will continue to hex Baltic governments.
Analysts in Latvia are warning that inflation in 2007 could even overtake last year's result as energy prices are poised to soar. Public transportation is also set to rise significantly.
Latvijas Gaze, the country's main gas distributor, has submitted a petition to have the price of natural gas increased by 42 's 45 percent. Adrians Davis, company CEO, told Latvian television that the Baltic state would pay 50 percent more to Gazprom for natural gas and that this cost would have to be passed on to the consumer.
The company submitted a hike proposal to the public utility regulator last fall, only to have it rejected on the grounds that it contained no agreement on the wholesale purchase price of gas. This time around, however, the regulator is likely to approve a hike.
Also, a Latvian construction association announced at the start of the year that prices of materials would rise 20 's 25 percent this year. Wages in the sector, which suffers a chronic shortage of labor, are poised to rise 30 's 40 percent, the association said.
Meanwhile, a task force created to tackle inflation, under the auspices of the Finance Minister, held its first meeting recently. Members decided to study each segment of inflation separately and then make recommendations based on their findings.
