Flash comment: Latvia - June 8, 2012:

1. Flash comment: Latvia
Economic commentary by Economic Research Department June 8, 2012
Consumer price growth continues to retreat swiftly
Consumer price growth, % In May 2012, Latvian consumer prices declined by 0.2% compared
15 3 to previous month (we had anticipated them to be constant). A food
and clothing price rise was a bit slower than expected. Prices of
10 2
household equipment continued to decline. In line with our
expectations, a 3.1% fuel price growth in April was replaced by a
5 1
3.4% fall in May.
0 0
CPI annual growth continued to decelerate swiftly, to 2.2% from
2.8% in April. Food prices were just by 1.1% higher than a year ago
-5 -1
(2.1% in April). Housing services’ price annual growth moderated to
-10 -2 6.6% from 7.4% a month ago, transport price growth – to 3.1%
2009 2010 2011 2012 from 4.7%. Prices of household equipment, footwear,
CPI, mom (rs) Goods, yoy communications, and education were still lower than a year ago.
Services, yoy Source: CSBL
Contribution to CPI annual growth, pp Outlook
12 Annual price growth is forecast to continue retreating also in June.
10
As of 1st July, a rise in natural gas and heating tariffs is expected
8
due to oil price increases earlier in the year. Altogether this would
6
raise monthly inflation by about 0.2 percentage points. At the same
4
time, a planned reduction in base VAT rate by 1 percentage point is
2
0
likely to diminish monthly inflation by about 0.5-0.6 percentage
-2 points, provided that businesses keep their promises to adjust
-4 prices accordingly.
-6
So far our forecast for average consumer price growth this year
2009 2010 2011 2012
Food Transport stays at 2.8%. However, it does not take into consideration the
Housing Other
Total, yoy growth planned tax cut. Thus we will most likely revise it downwards
somewhat.
Consumer inflation expectations and
CPI growth, points 12 month average CPI annual inflation decelerated to 3.9% in May
60 15
from 4.1% in April. It will continue to slow down in the coming 12
months. We thus consider fulfilling the Maastricht inflation criterion
40 10 in early 2013 realistic.
20 5
0 0 Lija Strašuna
-20 -5
Senior Economist
+ 371 6 744 5875
-40 -10 lija.strasuna@swedbank.lv
2009 2010 2011 2012
Consumer price expectations over next 12M
Price expectations over next 3M in retail
CPI annual growth, % (rs)
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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