On an annual basis, the biggest driver of inflation was fuel prices (+ 19.9%), driven by the still rising global oil prices. Last month, the price level was also significantly affected by food products (+ 2%), which follows the rising world food prices. The rise in commodity prices affects both producers and final consumers and is likely to continue, at least for the foreseeable future, contributing to the rise in average consumer prices.
Other product categories that pushed the average price level in June were clothing and footwear (+ 4%), as well as alcohol and tobacco products (+ 2.1%). In annual terms, the categories of culture and recreation (+ 1.7%), as well as catering also played a role. As more and more new sectors of the economy are gradually opening up, we are also seeing increases in the prices of goods traded and services provided by these sectors. It is expected that the price level increase will slow down with the end of the opening wave.
In the world, talk of inflation continues tirelessly. In the euro area, annual inflation was 1.9% in June. As before, inflation in June was driven by an increase in energy prices of 12.5%. Meanwhile, core inflation, which excludes volatile energy and food prices, was very weak in June, just below the 1% mark. The rise in inflation observed at the beginning of the year contributed to both an increase in speculation about further price developments and an increase in the June Eurozone survey on inflation expectations for the next 12 months. They are above the long-term average for the second month.
On the other side of the ocean, there is no talk of inflation. The US consumer price level reached 5% in May, and the June data is expected to be even a few tenths higher. In the second half of June, the US Federal Reserve signaled that it plans to raise interest rates by the end of 2023 – a year earlier than previously planned. The rapid economic recovery and strong fiscal stimulus are fueling the idea of easing monetary stimulus.
The registered inflation data in Latvia continue to show an increase in the average price level on an annual basis. In July, the increased tariffs for Latvian gas will also contribute to inflation. The rise in prices is driven by both the opening up of the economy and the strong wave of demand, as well as the ongoing supply chain problems and rising global commodity prices. However, as the global economy recovers, the role of these factors is expected to diminish.
Swedbank Latvia’s inflation forecast for 2021 is 1.8%, while in 2022 the rise in the consumer price level will reach 3%.
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