It is not an easy task to control inflation in Latvia, because the government’s generous fiscal support makes it difficult to reduce inflation, said Bank of Latvia Chief Economist Agnese Rutkovska at Tet and Draugiem Group business customers forum.
At the same time, she mentioned that inflation in Latvia remains high, and it is expected that the tense labour market will maintain wage growth.
Already there is a wage and price spiral in the country.
Additionally, “looking at the general price picture, it would seem that everyone is increasing prices regardless of whether there is an ongoing price surge,” said the chief economist of the Bank of Latvia.
Economists previously predicted that together with the price growth, residents’ purchasing power is down. However, data indicates this is not the case at the moment. Rutkovska notes that state support could have helped increase residents’ purchasing power. The same applies to savings – including ones generated during the pandemic.
During the pandemic there was a significant growth of household savings in commercial banks.
As for investments, Rutkovska said that because of the growth of interest rates of central banks, “the future doesn’t seem too rosy here either”.
At the same time, demand is down slightly. Nevertheless, it is still considered highly tense. The sectors that were impacted by restrictions imposed during the pandemic are on a rise, hoping to reach the pre-pandemic level.
Rutkovska said that uncertainty around the world remains high and inflation goes down slowly. It is expected that the 2% inflation level is not something countries can expect in the coming years. At the same time, central banks continue moving towards a restrictive monetary policy by raising interest rates.
Also read: Does inflation still play a significant role for unjustified price surges?