Inflation to stay low with sanctions effect

In July, consumer prices decreased by 0.4% compared to June while annual inflation stood at 0.6%, data published Friday by the Central Statistical Bureau showed.

 

Prices of goods decreased by 0.2% from June to July, while prices of services grew by 3.0%. Compared to the previous 12 months the average consumer price level over the last 12 months, increased by 0.2%, confirming that fears euro accession at the beginning of the year would fuel inflation have proved unfounded.

The low inflation atmosphere is set to continue for some time, Swedbank said in a commentary, with newly-announced Russian sanctions only strengthening the trend.

"Inflation has been quite moderate in Latvia this year and we expect that Russia’s embargo will cool down prices more than was expected before. Russia’s embargo on specific food products will no doubt prove to be a hurdle for specific local producers and farmers, but this will have a favourable impact on consumer prices as competition will intensify," Swedbank said.

"Furthermore, the impact will not be negligible - embargoed products make up on average nearly half of Latvian consumers’ food basket.

"Lower food prices would mean good news for consumers due to improved purchasing power, especially for less affluent households that spend a relatively larger share of their income on food.

"In general, we expect that consumer price growth will be below the 1.5% we forecast in April," Swedbank concluded.

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Economy
Economy