Bank of Latvia governor: inflation should decrease in the second half of 2022

Inflation in Latvia should decrease in the second half of the year, said Bank of Latvia Governor Mārtiņš Kazāks in an interview to Latvijas Radio.
At the same time, he admits economic inequality among residents may increase further this year because the income of some residents increases much more rapidly than inflation, whereas for others, mostly in sectors impacted by Covid-19 the most, income either remains the same or decreases.
To reduce this gap caused by economic inequality, the state should provide aid in the form of mechanisms to be used to gain income, not in the form of benefits, explained Kazāks.
«Which is why it is necessary to work on things put on hold in previous years, such as skill-training to help people earn more money and thereby become more resistant to crises and price growth, because their income would grow more quickly,» said the Governor of the Bank of Latvia.
When asked for how long the price growth could continue, Kazāks said a slight inflation in Eurozone is nothing bad, adding that it should remain within 2%. The currently observed 8-9% price increase is too rapid. However, considering the cause of this lies in economic recovery from the crisis and rapid growth of energy prices, there are reasons to believe the inflation rate could calm down around spring and summer.
«This means the 8-9% should drop to much lower digits in the second half of the year,» Kazāks predicted.
At the same time, he did say there are no indications at the moment that Latvia’s economy is at risk of overheating similarly to how it was in 2007-2008. In any case, however, it is necessary to follow if economic output grows sufficiently quickly and the planned wage rise is justified.
«If the wage rise turns out more rapid than economic output, competitiveness will be lost, which could further slow economic growth,» warns Kazāks.
He reminded that Latvian economic policy’s chief challenges this year will be avoiding fracturing Latvia’s economy into small fragments and losing the long-term vision.
When asked for this year’s economic outlook, Kazāks said that because of the spread of Omicron variant of Covid-19 it is expected to be erratic. Nevertheless, the general growth is predicted to be 4%, which, according to him, is «not bad».