In Latvia, annual inflation may decrease in the coming months; however, an increase is also possible in December, considering the usual rise in service prices observed in December, economists predict.
In Latvia, consumer prices in November of this year decreased by 0.3% compared to October, while on a year-on-year basis — compared to November 2024 — they increased by 3.8%, whereas the annual inflation rate was 4.3% a month earlier.
Ieva Opmane, economist at the Bank of Latvia:
– In November, due to promotions for Latvia's Independence Day, food prices were on average 0.5% lower. Globally, the trends of declining food prices are more stable than the fluctuations in Latvia. Against the backdrop of falling prices for oil, meat, and dairy products, the Food and Agriculture Organization (FAO) food price index decreased for the third consecutive month in November.
In November, the average electricity price in Latvia increased as the contribution of wind power plants to production was lower, and due to colder weather, the demand for energy increased. In the same month, following a slight rise in global oil prices, fuel also became more expensive in Latvia.
Sustained price growth is also supported by a significant increase in wages, which boosts demand. Although the growth of average wages in Latvia has somewhat slowed down, it has been strong and consistent for five consecutive years — averaging nearly 10% per year.
Overall, domestic factors indicate that price growth will remain noticeable in the coming months; however, the downward global price trends suggest that significantly higher inflation rates should not be expected in the near statistics.
Dainis Gashpuitis, economist:
– The most significant impact on the price decline in November came from falling prices for transportation services and food. The annual inflation rate decreased to 3.8%, of which 2.45 percentage points were attributed to the most significant household expenditure items — food and housing.
The upward wave of inflation was sustained at its peak longer than expected; however, inflation rates will gradually slow down. Food prices should stabilize, and in certain segments, a short-term price decline may occur.
Minor price adjustments for individual products could also be stimulated by the memorandum on food proposed by the Ministry of Economics of Latvia. However, the overall level of food prices will be more influenced by global prices and the rise in other costs, such as labor costs. From the new year, the impact of tax and tariff changes will also manifest in inflation.
Liva Sorgenfreya, chief economist:
– In November, compared to October, service prices decreased significantly faster than is usually characteristic for this month. The decline in price levels is largely due to a sharp drop in air transport prices. Typically, in November, the cost of air tickets decreases by 2–3%, but this year flights were 17.5% cheaper than in October.
The decline in prices in November was also influenced by prices for food and non-alcoholic beverages (–0.5%), where the most significant impacts came from fresh fruits, cheese, and cottage cheese, as well as coffee. Alcoholic beverages also became cheaper — their prices have decreased by more than 5% since the introduction of new trading and advertising restrictions in August of this year. Food prices in November decreased by 0.3%, which is contrary to the usual growth observed in this month. Calculations show that the prices of goods included in the “basket of low prices” of the food memorandum have decreased by 0.8% since May. In comparison, in other years, the prices of the “memorandum basket” in November are usually at the level of May.
To understand future inflation, it is worth paying attention to global price trends. Global food prices have been declining for the third consecutive month. Worldwide, the price of coffee has risen again in recent months after a summer decline, while prices for sugar and cocoa beans are decreasing. The UN food price index shows that the price of sugar in November was 30% lower than a year ago and was at its lowest level since 2020. However, the reflection of global raw material price dynamics in Latvian stores occurs with a delay.
In the last month of the year, inflation is likely to be somewhat higher, as December usually sees a faster increase in service prices. Forecasts for global energy prices for the next year remain relatively low, and more moderate wage growth may reduce pressure on service prices. The reduced VAT rate for certain food products will help contain food inflation. Next year, the average annual inflation in Latvia may be around 3%.
Pēteris Straujiņš, chief economist:
– In November, there was an especially large number of promotions observed in grocery stores, as confirmed by data from the Central Statistical Bureau. According to statisticians, prices for food and non-alcoholic beverages decreased by 0.5% in November, mainly influenced by promotions, including for products such as milk (–2.8%), cheese and cottage cheese (–2.5%), butter (–2%), juices (–6.8%), dry breakfasts (–6%), and several other products. In some cases, promotions may mark the beginning of a sustained price decline. This is particularly likely for juices, as the price of orange juice concentrate on exchanges in November was less than a third of the average level in November of last year. Since the global price of butter has also decreased by a third over the year, which affects other dairy products, their price reduction may also be more sustainable. The decline in food prices in November is not typical, as they usually increase by about half a percent at this time.
However, the decrease in raw material prices does not lead to a significant drop in average consumer prices for food, as historical examples confirm. For instance, in 2015, the S&P GSCI food commodity price index was 22% lower than in 2013, while food prices in Latvia in 2015 compared to 2013 decreased by only 1.7%.
It is also interesting to note that in 2019, average food prices were only 6.2% higher than in 2013, while the average gross salary during this period increased by 50.4%.
