May brought a heavy electricity bill and an emptier food basket

There is a saying that we appreciate something only when it has passed and ended. Maybe the electricity bill for May will help us realise that the government support provided during the previous months had reduced these bills significantly. 

Inflation in May continued to surge (+16.9% year-on-year) mainly owing to rising energy and food prices. The situation was similar in some municipalities whose heating bills had skyrocketed. These municipalities had enjoyed reduced tariffs until May but now they are facing a full price again. Although the government is drafting proposals for further support measures, no new satisfactory solutions have been approved so far. 

Electricity, gas and heating account for approximately one tenth of Latvian households' expenses. It is indeed true that these expenses can be seasonally volatile. However, some households use equalised payments to spread their expenses more evenly across the year. Meanwhile, those who try to procure fuel for the cold season of the year in a timely manner have already noticed that energy prices have skyrocketed. Others will feel the substantial increase in prices more acutely in autumn.

Food prices are another sensitive area, and everyone seems to have noticed their drastic increase.  Latvian households spend an average of one fourth of their expenses for food, but these expenses constitute the largest share of poorer households' total spending, although food expenditure in this group of households is lower in euro terms.

With food and energy prices rising, the burden put on household expenses is heavier than it otherwise would be if prices increased on durable goods or services whose purchase and consumption can be postponed or reduced.

Although the uncertainty regarding forecasts is strong now, it is expected that inflation will still remain high at least over the coming months. Households have to rethink their expenses and, as far as possible, consider possibilities of making savings or improving energy efficiency to face up the difficult times of the autumn. Meanwhile, the government has to do its summer homework, i.e. actively seek opportunities to provide support to the hardest hit population groups.

You can find more economic commentary and data at the dedicated website of the Latvian central bank, https://www.macroeconomics.lv.

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