Flash Comment - August 8, 2011: Latvia: CPI annual growth decelerated in July 2011

1. Flash comment
Economic commentary by Economic Research Department August 8, 2011
Latvia: CPI annual growth decelerated in July 2011
Consumer price growth, % Latvian CPI declined by 0.3% mom in July 2011. It was mostly
driven by lower food prices (-0.9% mom), especially vegetables
20 6
and potatoes (-14.2%). Most likely it was not only due to usual
15 seasonal volatility, but also a drop in global food prices (due to new
harvest, as well as increasing uncertainty about economic growth in
10 3
America and Europe), complemented by the E.coli problems (to a
5 smaller extent than previous month).
0 0 As expected, a rise in housing prices (+1.2%) was mostly due to
-5
increased natural gas tariffs (both tax hikes and trading price). In
turn, fuel prices have stabilized (+0.1%) and, taking into account
-10 -3 global developments (a fall in oil prices in August), Latvian fuel
Jan.07 Jan.08 Jan.09 Jan.10 Jan.11 prices are expected to decrease somewhat in the upcoming
CPI, mom (rs) CPI, yoy months.
Source: CSBL
In annual terms CPI growth decelerated to 4.3% (4.8% in June).
Contribution to CPI annual growth, pp
As before, the strongest price growth is observed in food (8.8%),
20
transport (8.1%), and housing (5.9%). Annual deflation is observed
in health care (-3.3%), recreation and culture (-0.9%),
15 communications (-1.7%), and household equipment (-1.1%).
10 Outlook
5 Overall, the influence of global commodity prices on Latvian
inflation has diminished, and it is expected to hold back local price
0 growth in the remaining months of the year. CPI annual growth has
peaked in the first half of the year (5% in May) and will most likely
-5 stay at about 4.5% in the nearest months. Without new tax hikes
Jan.07 Jan.08 Jan.09 Jan.10 Jan.11 and slightly decreasing global commodity prices, Latvian average
Food Transport CPI growth is expected to come down to about 2.5% in 2012.
Housing Other
Total, yoy growth Source: CSBL
Lija Strašuna
Senior Economist
+ 371 6 744 5875
lija.strasuna@swedbank.lv
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