The rise in prices was recorded in all groups of goods and services, the culmination of inflation is still ahead

The CSB data show that the largest impact on changes in the average consumer price level was the rise in prices for housing-related goods and services, transport-related goods and services, food and non-alcoholic beverages, clothing and footwear, health care, alcoholic beverages and tobacco products.

With prices for heat, natural gas and electricity rising, housing maintenance and repair services, solid fuel, waste collection, housing rental, as well as materials for housing maintenance and repair becoming more expensive, inflation in this group was registered at 10.1%. During the year, prices in the group of food and non-alcoholic beverages increased by 3.8%, in the group of clothing and footwear – by 3.6%, in health care – by 3.2%, in transport-related goods and services – by 9.4%. Fuel prices have risen by 19.3% over the year.

In Latvia, gas and electricity prices will continue to rise

Mārtiņš Āboliņš, an economist at Citadele Bank, is very concerned about the rapid rise in electricity and natural gas prices in Europe in recent weeks, which is now several times higher than last year’s levels. This has a negative impact on the costs and competitiveness of entrepreneurs, as well as on the financial situation of households and the consumption of other goods or services. According to him, the sharp rise in electricity and natural gas prices in Europe is currently due to a combination of factors: cold winter and hot summer, as well as the unexpectedly rapid economic recovery from the Covid-19 crisis, which has led to increased energy consumption in Europe this year. reduced wind and hydropower production. This has significantly increased natural gas consumption, and Europe’s natural gas reserves are lower this year than in other years. Demand for energy resources has also grown in other regions of the world, so now not only natural gas but also coal and oil prices have risen. Of course, the rise in prices is also likely to be partly due to geopolitical factors, Europe’s relations with Russia, such as political resistance to Nordstream 2, and general inflationary concerns, which increase the flow of financial investment in various natural resources. It is expected that the current level of electricity and natural gas prices is temporary and should decrease, but consumer prices in Latvia will continue to rise even if electricity and natural gas prices in Europe decrease significantly. Covid-19 constraints and supply chain disruptions mean that global industry demand continues to outstrip supply. This has led to a rise in world prices for transport, various raw materials and oil, and in August producer price inflation in Latvia has already approached 20%. Therefore, entrepreneurs have a lot of pressure to raise prices for consumers, but in some areas they have to face situations when the price is, but the goods are not available, for example, in the sale of new cars, ”M. Āboliņš believes.

The climax is yet to come

“Household budgets are having a very challenging time, when the most sensitive sections of expenditure – housing, transport and food – are experiencing very rapid growth, the culmination of which is still ahead,” says Dainis Gašpuitis, an economist at SEB banka. The question of how long it will take for inflation to fall again cannot be answered, but according to his forecasts, some relief in price tensions could be only in the second quarter of next year.

“And it seems that an increase in inflation could continue even after that, because the set of factors forming the price pressure is so wide that normalization will take a long time, driving up the increase in inflation expectations,” D. Gašpuitis thinks.

The OECD has also raised its inflation forecast for the G20, expecting it to rise by 3.7% this year and by 3.9% in 2022. The price of Brent oil has risen to its highest level since 2018, while gas and electricity prices are reaching records.

Against the background of the Baltic States, inflation in Latvia is “mild”

Luminor expert Pēteris Strautiņš believes that the average inflation of the past two years is still very moderate or 2.25%, but the ability of Latvians to look at price increases in the coming months will be severely tested as energy prices continue to rise. markets are going crazy ”.

Two mainly energy-dependent expenditure items – housing and transport – accounted for more than half of annual inflation, or 2.8 percentage points. A year ago, these items reduced the price level by 1.3 percent. The previously forecast rise in food prices is also taking place, but it is not and will not be the main driver of inflation, P. Strautiņš emphasizes. According to him, inflation in Latvia is still pleasantly low against the background of the Baltic neighbors – in Estonia the price increase has reached 6.6%, but in Lithuania 6.3%. “It may help to look at what is happening philosophically, but higher inflation in neighboring countries indicates additional risks posed by the consumer and housing market boom, which will sooner or later reach Latvia as well,” says P. Strautiņš.

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