SEB Bank economist Dainis Gašpuitis offers a look at February’s inflation indexes. While he does promise inflation to go down, he also admits «the future situation with inflation is shrouded in a rather thick fog».
In February prices continued going up and their level increased by 0.6% when compared with January. Food prices continued going up in all of Europe last month. Food prices accounted for half of the total price growth in February, reaching 0.32 percentage points. The price rise of alcohol and tobacco products added another 0.16 percentage points, leisure and culture-related goods and services added another 0.09 percentage points.
As a result of this, annual inflation dropped to 20.3%, which is the lowest rate since June 2022. The biggest influence on inflation still comes from housing (+46.6%), food (+25.3%) and transport-related costs (+9.7%).
In February inflation remained very high. However, it will start going down more rapidly in coming months. It may drop well below 20%. The future of inflation is shrouded in a thick fog because it depends on global factors. We can see the peaks of inflation are well behind us. Rates continue going down. February’s data indicates that
the drop is not quick as we would have otherwise liked in Eurozone or Latvia.
This is why it is hard to predict how quickly or how low it could drop. Powerful labour markets and sustainable economy ensure continued growth of wages, which is then reflected in prices. This is especially unpleasant because it will force central banks to be more aggressive and raise rates even more. This means more problems for the economy. Many countries may experience debt crises.
In the coming months the drop of energy prices will have a positive effect on inflation, pulling it down. In the second half of the year prices may reach upwards again, but it is unlikely we will see the rapid leaps that were observed last year. Fuel prices will likely remain unchanged. Changes will depend on the situation in the global economy. The stronger the growth, the higher the oil price will go.
Food prices will continue going up. With energy prices stabilised, however, certain food product segments will show price drops. This, on the other hand, will depend on the weather and the situation in the global economy.
Also read: Inflation in Latvia down to 20.3% in February