- Consumer price inflation in Latvia continued to decline in January 2012, reaching 3.6% year-over-year from 4.7% in August 2011. The largest price increases were in housing and transportation. - Food price inflation also slowed, with food prices only 3.7% higher than a year ago. Several goods experienced deflation, including clothing, healthcare, communications, and education. - Looking ahead, heating tariffs and fuel prices are expected to increase inflation in coming months, though to a lesser degree than in January, with inflation stabilizing in the summer unless geopolitical conflicts disrupt oil markets. Overall, consumer price growth in Latvia is forecast to continue decelerating in 2012.

1. Flash comment: Latvia
Economic commentary by Economic Research Department February 8, 2012
Latvian annual CPI inflation continues to diminish
Consumer price growth, % Latvian consumer prices increased by 0.8% in January 2012
15 3 compared to December 2011. This was even a bit less than we
expected. The main drivers of the monthly growth were gas and
10 2
heating tariffs, fuel, and seasonal prices of fruits and vegetables
5 1 In annual terms CPI growth continued to decelerate for the fifth
consecutive month. Prices in January were by 3.6% higher than a
0 0
year ago (4.7% in August 2011). The most rapid price growth was
observed in housing services’ (9.4%) and transport (5.6%). In the
-5 -1
meantime, food price inflation continued to decelerate and food
-10 -2 prices in January were just 3.7% higher than a year ago. Annual
Jan.09 Jan.10 Jan.11 Jan.12 deflation was observed in clothing and footwear (-0.2%), health
CPI, mom (rs) Goods, yoy care (-0.1%), communications (-2.3%), and education (-2%).
Services, yoy Source: CSBL
As usually in the beginning for the year, consumer basket structure
Contribution to CPI annual growth, pp
was also revised. The share of food products in consumer
12 expenditures decreased from 25.4% to 24.8% last year despite
10 quite a strong price growth. It might indicate that consumers still try
8
to adjust their spending behaviour and (i) buy cheaper alternatives
6
of food products and/or (ii) grow their own food (especially in the
4
regions). Unfortunately, the share of food items in the consumer
2
0
basket is still very high, while price volatility is high and dependent
-2 on global developments. Poorer households are particularly
-4 exposed to food price growth. In addition, the shares of such first-
-6 necessity items as housing services and transport in consumer
Jan.09 Jan.10 Jan.11 Jan.12 expenditures increased last year, to 16.7% (from 16.3%) and
Food Transport
Housing Other 13.9% (from 13.3%) respectively.
Total, yoy growth Source: CSBL
Shares of main product groups in Outlook
consumer basket, %
So far the forecast for average consumer price inflation in 2012
0 10 20 30 remains at 2.4%.
Food
Alcohol, tobacco In the coming months heating tariffs are anticipated to increase
Clothing, footwear
(due to natural gas price growth), although to a lesser extent than
Housing
Household equipment in January. Fuel price volatility will also remain high. Both these
Health product groups are highly influenced by global oil price dynamics,
Transport as well as EUR/USD exchange rate. We expect situation to
Communications
2011 stabilize towards summer (unless the geopolitical conflict in the
Recreation, culture
Education 2012 Middle East worsens or a new one arises). Consequently, we
Restaurants, hotels anticipate that consumer price growth in Latvia will continue to
Other decelerate.
Source: CSBL
Lija Strašuna
Senior Economist
+ 371 6 744 5875
lija.strasuna@swedbank.lv
Swedbank Economic Research Department Flash comment is published as a service to our customers. We believe that we have used
reliable sources and methods in the preparation of the analyses reported in this publication.
SE-105 34 Stockholm, Sweden
However, we cannot guarantee the accuracy or completeness of the report and cannot be
ek.sekr@swedbank.com
held responsible for any error or omission in the underlying material or its use. Readers are
www.swedbank.com
encouraged to base any (investment) decisions on other material as well. Neither
Swedbank nor its employees may be held responsible for losses or damages, direct or
Legally responsible publisher
indirect, owing to any errors or omissions in Flash comment.
Cecilia Hermansson, +46 8 5859 7720