The retail trade sector in Latvia continues demonstrating its ability to oppose high inflation and drop in purchasing power, as concluded by Swedbank economist Laimdota Komare, commenting on the latest data reported by the Central Statistical Bureau of Latvia (CSP).
Despite negative factors, in demand for goods remained stable in February. Residents not only spent more money, but also purchased more than last year. According to CSP, in February 2023, as compared with the same month of last year, retail trade sales showed a 2.4% increase (according to calendar adjusted data).
The sales volumes in food stores, when compared with February 2022, went down by 0.8%. Sales of non-food products, except fuel, showed growth of 4.8%. Fuel sales volumes increased by 2.9%.
In the second half of last year food sales showed a drop nearly every month. Considering high inflation, the drop in purchasing power, high utility bills, the drop in food purchases was not surprise. It is one section of residents’ expenses, and it is normal for residents to review their purchasing habits to save money in financially difficult times to save money. However, January and February were different to each other.
When compared with the previous month, food sales increased in the first two months of the year.
Nevertheless, food sale volumes were still behind results of the previous year.
Sales of non-food products turned out especially strong and continued showing growth. Sales of clothes and footwear, which showed 21% increase of sales, are especially noteworthy. Certain goods – such as ICT equipment – turned out more in demand than they were at the end of last year. Drops in sales were observed for certain non-food products, such as clocks and jewellery, flowers and plants, households appliances.
Does retail data suggest a more positive picture about residents’ financial situation?
Inflation, purchasing power and bills arguments remained in power. At the same time, data also indicates that residents’ evaluation of the economic situation has improved slightly. Their outlooks for their personal financial situation have also become slightly less pessimistic. It is possible winter turned out not as harsh as residents had expected. State support helped compensate the drop in purchasing power. This is why at the beginning of the year were more optimistic about the future and spend more money.
It is possible the hit on purchasing power was not as painful as changes to wages corrected for inflation implied.
Nevertheless, the reasons for better retail trade results may not be as rosy. There are a number of indexes that suggest the crisis caused by the pandemic and living expenses have contributed to the growth of income inequality.
According to data from CSP, last year there was an increase of the number of residents who found it difficult to make ends meet.
Nearly two-thirds of residents experienced financial difficulties.
Survey results show that last year 9.5% of all residents could not afford to eat meat or fish every other day (7.3% in 2021). It is possible data hides two hidden stories – one part of society has already tightened its belt and has limited shopping habits, whereas the other part of society can still afford expensive purchases. This is why retail trade is still able to demonstrate stable and sustainable sales volumes, the economist explains.
Retail trade’s contribution at the beginning of the year implies household consumption remains surprisingly stable. However, there is no reason to expect any significant growth in one or the other. Some month may show negative results, especially in the first half of the year, when inflation will continue exceeding wage growth. In March 2022, retail trade sales volumes were significantly higher than usual. This was largely thanks to covid-related restrictions being lifted, reminds Komare.
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