Latvia's inflation reaches 13.7 percent

  • 2007-12-12
  • By TBT staff
RIGA - Inflation in Latvia continued its inexorable upward trajectory in November, reaching an annual rate of 13.7 percent on soaring food prices, the statistics office announced Dec. 10. It was the sixth consecutive month for annual gains in the consumer price index, and both analysts and central bankers agree that inflation will continue to rise over the winter as food and energy prices creep higher.
Monthly inflation amounted to 1.4 percent, fuelled primarily by food prices, which jumped 3.4 percent in November. Bread prices alone skyrocketed 16.3 percent for the month, while those for transportation were up 1.7 percent.
Over the past 12 months food prices have risen 18.8 percent, cigarettes and tobacco 19.8 percent and housing costs 20.1 percent.
Latvia continues to top the 27-member European Union in terms of inflation, and for months now prices have steadily risen despite the government's anti-inflation plan, which was adopted in March but implemented only in July.
In part, Latvia's inflation currently is the result of global trends, as food prices worldwide increase due to a poor cereal harvest this year. Milk deficits are common throughout Europe. Energy prices have also risen, with a barrel of oil threatening to hit the $100 milestone and natural gas prices climbing in tandem. Russia's Gazprom has promised a steep hike in gas prices, as it wants East European nations to begin paying the same prices West European countries pay.

At the same time Latvia is also suffering from its own past mistakes, particularly the failure to address macroeconomic imbalances 's labor shortage, current account deficit 's and a real estate bubble.
The country's economy has, as a result, steamed at a record pace, with GDP growth hitting 11.9 percent in 2006 and, as the statistics office announced on Dec. 7, 11.0 percent over the first three quarters of this year.
Recent sales data indicates that bank lending and consumption have fallen dramatically, but the imbalances remain.

"Such a lengthy steep economic growth is serious basis for concerns," said Olga Ertuganova, an analyst at Latvijas Krajbanka. "The trend remains 's economic development is unbalanced, and development takes place mainly thanks to the service sector," she said.
She also said the lack of export growth was disturbing. "Several industrial sectors are stagnating or even seeing downward trends, including industries significant for Latvian exports 's timber processing and furniture production," Ertuganova said.
Zigurds Vaikulis, head analyst at Parex Asset Management, said the nine-month GDP data was surprising.
"Even though it sounds weird from the point of view of Latvian economic marketing, it would have been better for GDP growth to slow down. Foreign experts tend to hold to an opinion that the longer growth remains at such a high level, the more painful the fall will be," Vaikulis said.
He said he expected GDP to come in at 9 percent in the fourth quarter and annual growth to finish at 10.5 percent.

Martins Gravitis, spokesman for the Bank of Latvia, said this year's GDP growth would be about 10 percent, but in 2008 it would decline to 7 - 8 percent.
"The economic growth this year in general still has been rapid, but in the second half of the year there are more and more indicators proving that the peak of GDP growth is behind, so development of the national economy tends to stabilize," said Gravitis.
Quarterly results show that the economy has been slowing down from January to September. If in the first quarter GDP grew 11.2 percent, then in the second quarter it increased by 11 percent year-on-year and in the third 10.9 percent.