The level of consumer prices in October 2021 was 1.1% higher than in September. The price increase has been observed since the beginning of this year, thus it has been steadily increasing for the tenth month in a row. On an annual basis, price increases were even stronger, rising by 6.0%, the fastest price increase since mid-2009. It must be concluded that the annual rise in prices will accelerate on a monthly basis and inflationary pressures will become increasingly apparent in daily spending. At the same time, it should be noted that the rise in consumer prices is observed not only in Latvia, but also in the euro area and the world as a whole. Its flash estimate shows that the harmonized index of consumer prices in the euro area rose by 4.1% in October this year, including 4.6% in Germany, 5.1% in Ireland, 5.5% in Spain and Estonia and Lithuania respectively. by 7.4% and 8.2%. The acceleration in prices is global, as the International Monetary Fund also raised its inflation forecasts for both developed and developing countries this year in mid-October.
The factors that stimulate inflation worldwide can be divided into three groups. First, the growth of global economic activity, supported by favorable fiscal and monetary stimulus. Secondly, the rise in the prices of raw materials and especially oil, gas, wood and metals, which is related to the sharp rise in demand for these goods. Third, scarcity of raw materials and disruption of supply chains. This is not a question of natural resources, but of other intermediate goods, such as semiconductors or chips used in the manufacture of vehicles, electrical equipment and household appliances. In turn, rising fuel prices and supply disruptions are having a negative impact on logistics costs. According to the International Monetary Fund, the sharp rise in global prices is likely to continue until the middle of next year, but the situation may be different in some parts of the world.
The growth of consumer prices in Latvia in the remaining months of the year will accelerate further, approaching 7-8%, which will be determined by higher heat and electricity tariffs, which will come into force in November this year, as well as higher food prices. This rate of price growth will continue until at least the spring of next year, while future developments in commodity prices, in particular energy prices, the spread of the Covid-19 virus and possible restrictions will determine the future dynamics of inflation.
Regarding the internal factors of Latvia that affect consumer prices, the situation in the labor market should also be mentioned. At the end of October this year, the registered unemployment rate in Latvia reached 6%, which is lower than the pre-pandemic level. In turn, the average wage in the second quarter of this year increased by 10.2% compared to the corresponding quarter of the previous year. Undoubtedly, many people have lost their jobs as a result of the pandemic and their income levels have even fallen, contrary to the national average, but the shortage of workers in certain sectors will continue to stimulate wage growth and, consequently, rising prices.
As in the previous month, the largest contribution to the rise in consumer prices in October this year was made by a 33.4% increase in fuel prices compared to the corresponding month of the previous year, thus explaining 1.8 percentage points of headline inflation. In October of this year, 1 liter of 95th grade petrol cost 1.458 euros, which is very close to the historically high level of April 2012. A new price record is likely to be set next month, driven by rising global oil prices. Brent The price of crude oil has reached USD 85 per barrel and forecasts are constantly being revised upwards, mainly due to rising oil demand. Oil supply, on the other hand, is constrained by the relatively slow increase in OPEC + oil production. This means that fuel prices will remain high in the coming months.
Inflation in October this year was also significantly affected by higher prices for housing-related services. Housing expenditure increased by 11.8% in October this year compared to October last year, mainly due to higher prices for utilities such as gas (+ 37.6%), electricity (+ 18.1%) and heat (+17.8%). %). It should be noted that the rise in heat and electricity prices will be even faster in November, which will be determined by the increase in tariffs for these services.
MINISTRY OF FINANCE
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