Flash comment: Latvia - July 9, 2012


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Flash comment: Latvia - July 9, 2012: Annual consumer price growth at 1.9% in June

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Flash comment: Latvia - July 9, 2012

  1. 1. Flash comment: Latvia Economic commentary by Economic Research Department July 9, 2012 Annual consumer price growth at 1.9% in June Consumer price growth, % In June 2012, Latvian consumer prices declined by 0.1% compared to 15 3 previous month. A fall in prices of fuel, household equipment, and seasonal sales of clothing and footwear compensated for a seasonal price 10 2 rise of food items. 5 1 CPI annual growth continued to decelerate and was 1.9% in June (2.2% in May). Prices of household equipment, footwear, communications, and 0 0 education were still lower than a year ago. Food prices were by 1.7% higher than a year ago, transport – by 1.6%, housing – by 5.6%. -5 -1 Inflation expectations of consumers and retailers have diminished in -10 -2 recent months. Domestic price pressures remain weak, and main drivers 2009 2010 2011 2012 CPI, mom (rs) Goods, yoy for price changes remain those from abroad. The contribution of food and Services, yoy Source: CSBL transport price changes to headline annual CPI growth has declined substantially in the recent months owing to favourable developments Contribution to CPI annual growth, pp globally. The contribution of housing tariffs remains high though, 12 explaining more than 40% of annual inflation rate. 10 8 Outlook 6 4 In June heating tariffs of Rīgas Siltums (central heating in Riga) rose by 2 1.5% due to inclusion of last year’s gas excise tax hike. Gas and heating 0 tariffs are expected to increase in July as well (3-5% for natural gas taking -2 into account smaller VAT rate as of July, about 6% for Rīgas Siltums) due -4 to oil price growth earlier this year. Households will feel the heating tariffs’ -6 rise only in autumn though, when the heating season starts. We anticipate 2009 2010 2011 2012 Food Transport about 1/5 higher heating tariffs in September-October comparing to a year Housing Other Total, yoy growth Source: CSBL ago (according to latest gas price forecasts by Latvijas Gāze), which might undermine other household spending at the end of this year. Consumer inflation expectations and CPI growth, points At the same time, considering the fall in oil and thus fuel oil prices (to 60 15 which gas prices are bound) in April-June and assuming they remain by and large stable during the rest of the year, heating tariffs should diminish 40 10 somewhat towards the end of the year. Of course, possibly weaker 20 5 EUR/USD exchange rate and an increase in global oil prices would delay a fall in domestic tariffs. However, we do not anticipate more tariff rises in 0 0 the second half of the year. -20 -5 So far our forecast for average consumer price growth this year stays at -40 -10 2.8%. However, it does not take into consideration the VAT cut as of July 2009 2010 2011 2012 1st, and thus is likely to be revised downwards. 12 month average CPI Consumer price expectations over next 12M annual inflation continued to decelerate and was 3.6% in June (3.9% in Price expectations over next 3M in retail CPI annual growth, % (rs) May). It will continue to slow down in the coming months. We thus Source: DG ECFIN, CSBL consider fulfilling the Maastricht inflation criterion in early 2013 realistic. Lija Strašuna Senior Economist + 371 6 744 5875 lija.strasuna@swedbank.lvSwedbank 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 beek.sekr@swedbank.com held responsible for any error or omission in the underlying material or its use. Readers arewww.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 orLegally responsible publisher indirect, owing to any errors or omissions in Flash comment.Cecilia Hermansson, +46 8 5859 7720