RIGA - Latvia's economy grew by a head-spinning 11.9 percent in the fourth quarter compared to the same quarter in 2005, the Central Statistics Bureau said on Feb. 9, one day after the bureau announced that annual inflation had increased to 7.1 percent. The data, coming back-to-back during two days, amounted to a mixture of hot and cold water dumped on ministers' heads. Latvia remains the fastest growing economy in the 27 member European Union, but it also occupies one of the top slots in terms of inflation.
Economy Minister Jurijs Strods said the fourth quarter result attests to the strength of Latvia's economy, which continues to expand rapidly and close the gap in living standards between the Baltic state and West European EU members.
"I am gratified that the competitiveness of Latvia's businessmen is growing, and it is fostered by support from EU structural funds and the state to upgrade and expand production plants," he said.
"Step by step we are moving toward Latvia's national Lisbon Strategy goals 's to continue economic growth and increase the level of employment," the minister added.
Meanwhile, inflation continues to dog the economy. If year-on-year inflation was 6.8 percent at the end of 2006, then by the end of January 2007 it had grown to 7.1 percent. In January alone prices rose 1.3 percent.
In October the annual inflation rate ticked down to 6.5, but once again it is on the rise.
Finance Minister Oskars Spurdzins said that while the high level was expected for January, he had been hoping the annual number would stay below the 7 percent threshold.
Thus the government seems powerless 's or incapable 's of combating the problem. The 2007 budget provides for a 5.9 percent rise in consumer prices.
"Inflation will not just go away," Lija Strasuna, an economist at Hansabanka, told the Baltic News Service. "It will take serious work to curb inflation. Besides, to achieve significant results, all market players must be involved."
On Feb. 12 the Ministry of Finance announced its forecast that consumer prices would rise 6.7 percent this year. The ministry said that public transport fees and water fees increased in February, and that will impact this month's result. What's more, fruits and vegetables 's always more expensive in the winter 's will also have an impact.
"If our present prognoses come true and monthly inflation in February tops 1 percent, then Latvia's annual inflation might jump to over 8 percent and set a new record," said Zigurds Vaikulis, an analyst at Parex Bank.
The government has formed a working group that will give recommendations for combating inflationary growth, but so far nothing useful has come from the group.
Given that many regulated prices 's transportation, gas, water, electricity 's are set to rise significantly in coming months, there is even speculation that inflation could indeed set a record this year. Reports indicate that many businessmen have factored increased labor and other costs into their budgets, and many will in turn raise prices for their goods and services as well.
The inflationary spiral is intensifying, but nothing is being done to stop it.
