- Consumer prices in Latvia declined 0.3% in August 2011 due largely to seasonal drops in food prices such as vegetables and fruits. - Fuel prices also decreased slightly in August but were expected to rise again in September as global oil prices had increased. - Clothing prices surprisingly increased in August which is unusual as seasonal sales normally end in late August/early September. - Annual inflation accelerated to 4.7% in August driven strongly by price growth in food, transport, and housing while prices fell in health care, communications, recreation and household equipment.

1. Flash comment: Latvia
Economic commentary by Economic Research Department September 8, 2011
Seasonal monthly deflation in August 2011
Consumer price growth, % Latvian consumer prices declined by 0.3% mom in August
2011. The largest contribution came from seasonal fall in food
20 4
prices (-2% mom), especially vegetables (-20.9%) and fruits
15 3 (-7.6%). During last weeks global food prices have risen somewhat
– The Economist estimated food price index in early September
10 2
was by ca 5% higher than a month ago thus reaching the level of
5 1 the beginning of the year. The developments for different product
groups vary of course, but overall there is no reason for a large
0 0
increase in Latvian food prices in autumn.
-5 -1
Fuel prices also decreased somewhat (-0.6% mom). Global oil
-10 -2 prices increased a bit in early September compensating the fall in
Jan.07 Jan.08 Jan.09 Jan.10 Jan.11
August and returning to July levels. Therefore, it is likely that we will
CPI, mom (rs) CPI, yoy
Goods, yoy Services, yoy see a small rise in Latvian fuel prices in September as well.
Source: CSBL
An increase in clothing prices in August (+2.4% mom) was a bit of
a surprise, as usually seasonal sales end in late August - early
Contribution to CPI annual growth, pp September. Last time clothing prices were up in August was in
2008, i.e. before the crisis.
20
In annual terms CPI growth accelerated again to 4.7% (4.3% in
15 July). As before, the strongest price growth is observed in food and
transport (8.5%), as well as housing (6.1%). Annual deflation is still
10
observed in health care (-2.7%), communications (-1.7%),
recreation and culture (-1.6%), and household equipment (-0.4%).
5
0 Outlook
Swedbank forecasts 4.5% average consumer price inflation in
-5
2011. It is then expected to come down to about 2.4% in 2012,
Jan.07 Jan.08 Jan.09 Jan.10 Jan.11
Food Transport assuming that taxes are not raised and global commodity prices
Housing Other decrease somewhat. Consequently, price developments will
Total, yoy growth Source: CSBL
increasingly depend on extent of local competition. The
government should pay attention to that, as improvements in
competition can not only reduce price pressures, but also promote
productivity growth and competiveness gains.
Lija Strašuna
Senior Economist
+ 371 6 744 5875
lija.strasuna@swedbank.lv
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