Lower prices ahead for Latvia

RIGA - Currently, prices in Latvia are increasing moderately, and there will be no rapid increase in the near future; on the contrary, prices will stabilize and in the second half of the year they could decrease, Bank of Latvia President Ilmars Rimsevics said on Jan. 13, reports Nozare.lv. Rimsevics expects that during the first months of this year, inflation could exceed 3 percent, however, already in spring, the prices for food and energy resources will stop growing, and annual inflation will decrease as well.
According to the Bank of Latvia forecast, inflation will average 2.7 percent this year.

Rimsevics is confident that Latvia will not return to the pre-crisis two-digit inflation, and people do not need to worry about it.
The bank chief emphasized that weak demand and high unemployment will force inflation to decrease, which will contribute to price stability. However, it must be taken into account that in the first few months, inflation will increase slightly, but afterwards will decrease. Inflation will be affected by global developments and local decisions; in the second half of the year it will stabilize and return to the 2010 level, forecast Rimsevics.

He pointed out that inflation can also be accelerated by several other factors such as oil prices which, due to the increasing demand for oil, especially in China, have been constantly increasing. Another factor that can contribute to inflation is food prices, which have also been steadily increasing during the previous months.

Another influencing factor is the increasing foreign demand. Last year it increased by 14 percent, and this year is forecast to increase by 6 percent. Despite the fact that in many countries inflation will be reduced by budget consolidation measures, the most important Latvian export markets (Lithuania, Estonia, Germany, Nordic countries and Russia) could still continue to grow.
As the fourth contributing factor, Rimsevics mentioned the situation on the labor market, where qualifications currently do not match the market’s demand. “There are not enough specialists, even though the level of unemployment is high,” said Rimsevics.

The banker also said that global events and tax increases can also contribute to inflation’s increase.
Some businessmen may increase prices more than their costs actually increase.
Consumer prices in Latvia in 2010 increased 2.5 percent. Prices for goods increased 4.3 percent and prices for services decreased 2.1 percent.

The average consumer price level in 2010, compared to 2009, decreased 1.1 percent, while the data from 2009, compared to 2008, show a 3.5 percent increase.

In December 2010, compared to November 2010, consumer prices increased 0.1 percent, the average consumer price level for goods increased 0.2 percent, while for services did not change. Consumer prices in December 2009, compared to November 2009, decreased 0.5 percent.