June 8, 2021.
The information was prepared by Laura Orleāne, Swedbank economist.
Inflation recorded last month reflected previously expressed concerns about the continued rise in price levels. On an annual basis, an increase of 2.6% was observed, but compared to April, prices increased by 0.5%. The sharp rise in the price level is a logical part of the re-opening of the economy.
On a monthly basis, fuel (+ 1.1%) and food prices (+ 1.3%) played the most significant role in the rise in prices, which to a lesser extent follows the rise in world commodity prices. The UN food index showed pluses for the twelfth month in a row, while oil prices approached the mark of $ 70 per barrel in May. The category of restaurants and hotels also played an important role, thanks to the terraces opened in the beginning of May – pointing out the role of easing restrictions in headline inflation.
Inflation in the euro area reached 2% last month, the price stability threshold set by the ECB. The number of headlines on inflation in European newspapers is growing faster than the prices themselves, but the rise in prices is still largely due to rising energy prices (+13.1). Core inflation, which excludes always volatile energy and food prices, was below 1% in the region last month. The re-opening of the economy is causing inflation to rise all over the world. In the United States, consumer prices rose by 4.2% in April, with price growth likely to exceed 4% in May. Economic incentives, the easing of restrictions and the savings released are fueling the debate on how long the rapid growth will continue. However, just like in Latvia, global inflation is part of the post-pandemic opening. Growth will stabilize and such a sharp rise in prices is not expected to continue in the medium term.
The queues at the shops are starting to flourish, but people are still ready to exchange their supplies for goods and services that could not be obtained due to restrictions. So far, the sharp rise in inflation has reflected last year’s fall in price levels, rising global commodity prices, supply chain problems and easing restrictions. In April, clothing and footwear were the main drivers of the price level, while in May, catering and leisure services joined the list. The phasing out of restrictions and the willingness of citizens to pay for services and tangible goods will put upward pressure on inflation in the coming months as traders and buyers try to catch up during the pandemic.
Swedbank Latvija’s forecast for inflation in 2021 currently reaches 1.8%, while in 2022 the increase in the consumer price level will reach 3%.
Additional information:
Laura Orleāne,
Swedbank economist
Tel.: +371 67 444 213
https://www.swedbank.lv/about/swedbank/about/economic
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