RIGA - President Valdis Zatlers has appealed directly to Latvians to help fight inflation by cutting back on spending and increasing savings, while an outspoken minister has warned that inflation could reach 14 's 15 percent in the beginning of 2008 on the crest of soaring energy and food prices.
Speaking to the "900 Seconds" news program on Oct. 1, Zatlers said that the population must cut spending significantly and save more in order to curb inflation, which is currently running at 10 percent annually.
"Everybody must participate, and everybody must reduce expenditures," the president said.
"If we have raised wages by 20 's 30 percent, even 40 percent this year, and inflation, even in the existing environment, is at 10 percent, then obviously in order to stop the process we have to reduce spending for at least a year and cut expenses considerably," Zatlers said.
The head of stated pointed out that every country that has successfully combated inflation did so by slashing spending across the board 's in both public and private sectors.
Meanwhile, Aigars Stokenbergs, the minister for regional development known for speaking his mind, admitted in an interview that the consumer price index could soon reach 14 's 15 percent after a hike in the heating tariff and higher prices for bread and other foodstuffs kick in.
"What we see today are only the consequences. Inflation has already reached 10 percent. In order not to lie to the public we have to say that inflation by the New Year will reach some 14 's 15 percent," he told the Latvijas Avize daily, the country's largest newspaper by circulation.
Stokenbergs said that world trends for higher energy and food costs would be reflected in Latvia, and it would be very difficult for the Baltic state to resist these forces.
Riga Siltums (Riga Heat) announced that as of Oct. 1 heating prices in the capital, where one-third of Latvia's population lives, rose 28 percent due to a rise in energy prices. Winter heating bills, as a result, are set to rise dramatically for Riga residents 's by some 0.23 lat to a total of 0.81 lat per square meter.
Bread prices are also set to soar beginning in the fourth quarter. (See story on this Page.)
Stokenbergs' prediction was remarkable in that fewer government officials are daring to predict the dynamics of inflation as time wears on. Bank of Latvia chief Ilmars Rimsevics has refused to do so, and on Oct. 1 Prime Minister Aigars Kalvitis sidestepped making any prediction, saying the final result largely depended on "how prepared we will be to save our money and not throw it into consumption."
Like Zatlers, the prime minister urged people to avoid unnecessary spending to prevent domestic consumption from growing even further.
"It is clear that global market trends with both oil products and food are very bad, and if we fail to restrict our domestic consumption boom, the risks will be very serious," the prime minister said.
Kalvitis hinted that the 2008 budget would be crucial in determining inflationary trends. He said that the bigger surplus the government manages to agree upon, the better the chances would be to reduce consumption.
Echoing the president, Kalvitis also said that it would be wrong to assume that it was up to the government alone to tackle inflation. "This is the job and common responsibility of all the society," he said.
In May the government approved an anti-inflation plan that provides for more stringent lending policies, particularly in the real estate market. Most of the legislative amendments took effect in June or July, though other aspects 's such as fostering competition and boosting production 's have yet to be hammered out.
In this regard, Stokenbergs said that Latvia had to reorient its tax system from consumption to production if the economy was to survive.
"Only if the taxation system becomes positive for producers will considerable improvements be seen," said Stokenbergs, who like Kalvitis is a member of the People's Party.
According to Central Statistics Office data, annual inflation in Latvia reached 10.1 percent as of August, the highest figure since January 1997.