It is expected for inflation in Latvia to remain at 7.5-8% throughout the entire first half-year of 2022. This will be dictated mostly due to the energy and food product price climb, as reported by the Ministry of Finance.
In the second half of the year, inflation will gradually decrease, the ministry predicts.
The latest data from the Central Statistical Bureau of Latvia on price change indicates that the price dynamic in the country will be dictated by high energy prices. In January 2022 consumer prices increased by 7.4% when compared to the same month of 2021.
The Ministry of Finance notes that, when compared to December 2021, consumer price level has remained unchanged. This means the tendency observed in the previous 12 months, when consumer prices continued growing every month, is over. However, it does not seem the price level has stabilised and that they will not grow any longer.
First of all, the ministry explains, 1 January 2022 marked to coming into force of the government’s support measures to help reduce energy prices. Households in Latvia have access to multiple support instruments that help reduce electricity, gas and heating energy price rise. Support measures will be available until the end of April. With the end of the support period, the price rise may start increasing again, reports the ministry. Electricity, gas and heating energy prices will be dictated by the global gas price dynamics.
Read also: European Commission downgrades Latvia’s GDP growth and upgrades inflation outlook
Secondly, the rapid energy price rise observed at the end of last year has yet to be reflected in product and service prices, the ministry explains. Because energy resources represent an important component of production and logistic costs that affect the end price of goods and services. This means secondary effects will have an effect on consumer price changes.
In January 2022 fuel prices were 26.4% higher when compared to the previous year. Natural gas became 65.3% more expensive. Heating energy became 25.2% more expensive, and price growth will only increase in the coming months. The reason is because municipal heating energy supply companies continue increasing tariffs. The Ministry of Finance notes that without state support the heating energy price rise will be more rapid.
At the end of 2021 a new trend appeared and it is not directly observed in Latvia and its stores – food product price increase, as reported by the ministry. While at the end of January 2021 food product prices demonstrated a deflation of 0.5%, in January 2022 food in Latvia was 9.4% more expensive. The price rise is observed for all types of food, but it is the most rapid for bread, dairy products, cooking oil, vegetable and sugar.
Food makes up to nearly a quarter of households’ baskets, the ministry explains. Therefore, although the food price growth is not as rapid as the price growth for gas or fuel, it does nave a significant effect on the average inflation and residents’ purchasing power. Last year the volume of unprocessed food prices in the world reached the highest level in the last decade, which was affected by poor harvest volumes, supply disruptions, high energy prices and rapid drop in demand.
Ministry: inflation in Latvia will remain at 7,5-8% in first half-year of 2022
