The Bank of Latvia has upgraded the average inflation outlook for 2023 from 8.5% to 9%, as journalists were told by the central bank’s representatives.
The average inflation outlook for 2024 is downgraded from July’s 2.4% to 2.3%. The average inflation outlook for 2025 is downgraded from 3% to 2.5%.
According to the Bank of Latvia, assumptions about lower food and natural gas prices allow for the reduction of future inflation outlooks in Latvia for the coming years.
The central bank notes that in Eurozone and Latvia inflation is in decline. However, the world’s leading central banks stress that inflation remains higher than the target for a long period of time. Inflation outlooks for Eurozone were corrected upwards for 2023 and 2024 and downward for 2025 – reaching an average level of 2.1% in the last outlook year.
The Bank of Latvia notes that inflation in the country continues going down as the previously observed supply-side restrictions disappear.
According to the Bank of Latvia, global resource prices and raw material import prices are down
– prices of energy resources are lower than a year prior, global food prices have gone down in recent months. Similarly, producer prices in manufacturing are decreasing and are already lower than last year, largely reflecting the adjustment of energy resource prices, as well as the expected heating prices in a large part of Latvia’s settlements are lower than in the previous heating season. Expectations of consumer and business price increases have also decreased significantly, but there are risks of price increases and, for example, oil prices have recently risen in global markets. The impact of wage increases on prices is also intensifying.
The latest inflation data points to a stronger than expected rise of prices of energy, service and industrial goods. This is why inflation outlook for 2023 has been upgraded to 9%.
At the same time, the persistence of core inflation in 2023 is dictated by the strong wage growth, which affects the price formation process from both the demand side and the cost side.
The Bank of Latvia still expects that in 2023 the base inflation in Latvia will be 8.2%. For 2024 the central bank predicts base inflation will go down from 5.7% to 5.3%, and for 2025 the central bank predicts a drop from 4.4% to 4.2%.
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