Cecilia Hermansson

1. Flash comment: Latvia
Economic commentary by Economic Research Department March 8, 2012
Latvian annual CPI inflation continues to moderate
Consumer price growth, % In February 2012, Latvian consumer prices increased by 0.1%
15 3 compared to previous month. This is in line with our expectations.
The main drivers of the monthly growth were food (mainly fruits and
10 2
vegetables) and transport prices (mainly fuel).
5 1 In annual terms CPI growth continued to decelerate. Prices in
February were by 3.4% higher than a year ago (3.6% in January
0 0
2012). The most rapid price growth was observed in housing
services (9.8%) and in transport (6%). Annual price declines were
-5 -1
in health care (-0.9%), communications (-1.9%), recreation and
-10 -2 culture (-0.6%), and education (-2%).
2009 2010 2011 2012
CPI, mom (rs) Monthly food price growth in February was mostly seasonal.
Services, yoy Annual food inflation continued to decelerate following global price
developments, and food prices in February were just 2.6% higher
Contribution to CPI annual growth, pp
than a year ago. As a result, the influence of food price growth on
12 the total inflation rate continued to shrink. While a global price index
10 for food items is still lower than a year ago, Latvian food prices are
8
certainly influenced also by regional and local factors (e.g., labour
6
costs and competition).
4
2
0
Outlook
-2
So far the forecast for average consumer price growth in 2012
-4
remains at 2.4%.
-6
2009 2010 2011 2012
Food Transport The main risk for this forecast currently comes from global oil
Housing Other
Total, yoy growth Source: CSBL prices. If the geopolitical conflict in the Middle East becomes
aggravated, oil price could rise more and remain on high levels for
Consumer inflation expectations and quite a while. This would then be reflected not only in elevated local
CPI growth, points
fuel prices, but perhaps also, with a small time lag, higher food
60 15 prices and housing tariffs. Under current base scenario we expect
40 10
global prices to stabilise towards summer, and thus Latvian
consumer price growth will continue to decelerate.
20 5
0 0
Lija Strašuna
Senior Economist
-20 -5 + 371 6 744 5875
-40 -10
lija.strasuna@swedbank.lv
2009 2010 2011 2012
Consumer price expectations over next 12M
Price expectations over next 12M in retail
CPI annual growth, %
Source: DG ECFIN, CSBL
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reliable sources and methods in the preparation of the analyses reported in this publication.
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Cecilia Hermansson, +46 8 5859 7720