Consumer prices grew by 21.5% in January, when compared with the same month of 2022. This means inflation in Latvia has become much higher than in other Baltic States. Inflation in the Baltic States is the highest among Eurozone member states, estimates Luminor Bank economist Pēteris Strautiņš.
According to him, Latvian is different from Estonia and Lithuania mainly because in the first four months of 2022 Latvia’s government implemented very effective energy price reduction measures. This is why annual inflation was 3% – 6% lower when compared with Estonia and Lithuania. Currently the reflection of this difference is evident –
the price rise in Latvia is measured against the «artificially» reduced base.
The main factors that contribute to the growth of living expenses is housing and food, which compose three-quarters of the annual inflation. Transport costs contribute to this as well. Fortunately, the influence from the latter is gradually going down. In the second half of the year the housing cost section may change from from plus sign to minus sign. This moment may be sped up or slowed by state decisions on support for households.
It is expected for inflation to start going down gradually in February. In the months that will follow, it may become more apparent, because prices had surged very rapidly in spring last year, creating a very «beneficial» base effect for this year.
In May inflation may drop to a single digit.
Compared with December, prices went up by 0.5% in January. This is where we may see the highest monthly inflation is a very long time. Due to inertia, food prices have gone up somewhat, but this process should end soon. «I write ‘somewhat’ because in statistics it is difficult to set a price rate breaking point, as there is no way to accurately reflect the influence of discounts on how much people pay for products,» explains the expert.
Strautiņš reminded information reported by the Central Statistical Bureau of Latvia that «with discount offers over, milk became more expensive (+3.0%)». This caused many to ask questions. Because in January shops in which previously it was possible by purchase 1l of milk for approximately EUR 1.5 started using discount offers that let residents purchase some of the products for one-third of the price.
It is believed the majority of buyers used this opportunity, because milk is not different from other milk. Most milk on shelves is still sold at previous prices, but their average price definitely does not reflect the actual price at which average purchases are made. There aren’t any doubts why discounts appear – the price of milk is rapidly going down. According to information from farmers, the price of fresh milk may drop to a half of last year’s peak level.
It is possible statistical data will reflect this once base prices go down.
It is economically beneficial for shops to hide lasting price drop behind discount offers or as special offers for holders of loyalty cards.
Price drop for many important food products is unavoidable because over the course of six months there have been drops in prices for food raw materials, energy resources and mineral fertilisers.
The next biggest contribution to the price rise came from «various goods and services» and «health». Without a doubt, prices for most services will continue growing, because the time of Latvian residents is becoming more expensive, which is the main pillar of costs for service providers.
Housing maintenance had a downward effect on prices in January. This influence will only increase in the coming months because gas, wood chips and electricity are gradually becoming cheaper. Europe’s gas price has already gone down to 50 EUR/MWh. In January the prices was EUR 69 (EUR 116 in December 2022).
Inflation decline in Latvia is slow. Base inflation is on a rise as well – price rise for consumer basket, which excludes energy and food. Base inflation continues growing across Eurozone, and it is one of the main arguments used by the European Central Bank to raise interest rates.
But the term «base inflation» has lost its initial meaning for a moment. It no longer plays the role it did before the pandemic. Since the pandemic transient factors have strongly affected prices of goods that are normally protected from them. For example, the rise in costs of container transports from Asia to Europe and US was tenfold. There was also unusually high demand for certain long-use goods and materials used in construction.
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