Prices swell from the frost: another reason found to justify Latvian inflation 0 8

In Latvia, consumer prices in January of this year remained unchanged compared to December, while on a year-on-year basis — in January 2026 compared to January 2025 — they increased by 2.9%. For comparison, the annual inflation a month earlier was 3.5%, according to data from the Central Statistical Bureau.

What do local economists think about this?

A gift before the elections

Dainis Gashpuitis, economist:
– The most significant influence on price changes was the decrease in prices in the transport group, as well as for clothing and footwear. At the same time, housing costs increased.

Cold weather conditions affected energy prices, which, during a prolonged cold winter worldwide, may slightly increase inflation. This influence is likely to be temporary, and the downward trends in food raw material and producer prices promise a slower growth in food prices.

By mid-year, the effect of the "pre-election gift" should manifest — selectively and temporarily reduced value-added tax (VAT) on food. The rise in prices for goods will continue to be restrained by the strengthening euro and price dumping on Chinese goods. In the services sector, growth will remain somewhat faster, influenced more by internal processes, especially wage growth and increased demand.

Slower inflation should improve consumer sentiment and their willingness to spend, which will benefit consumption. Given the pace set at the beginning of the year, the annual inflation this year may be lower than the projected 2.4%.

An unexpected slowdown in inflation was also observed in the eurozone. In January, inflation in the eurozone slowed from 2% in December to 1.7%. This is mainly due to falling energy prices and slower price growth in other groups. The growth of food prices has also slowed. Additional influence came from the strengthening euro, which reduced import prices.

Energy's contribution to inflation

Peters Strautinsh, economist:
– The absence of growth in the overall cost of living in January is a pleasant result from the consumers' perspective, as average prices usually rise by about 0.3% in January.

The decrease in annual inflation from 3.5% to 2.9% can be explained by the base effect — an unusually rapid price increase in the first four months of 2025. Since April 2025, the cost of living in Latvia has changed little.

In January, the level of prices is lowered by sales of clothing and footwear, although this year their impact was less than usual. Among the factors that "froze" prices at December levels is a 7.6% decrease in fuel prices.

Changes over the last nine months can be characterized as practically insignificant, and during such periods, discounts can have a greater impact on the actual level of transaction prices.

Additionally, in mid-January, one of the leading retailers of everyday goods announced a permanent price reduction on several thousand items, and the possible impact of this event is not yet visible in January's data. Observations show that this retailer has stopped promoting discounts on items that have permanently decreased in price. Thus, the influence of discounts on consumer spending is reduced.

For residents of Latvia, there is also bad news. A strong cold wave sharply increased exchange prices for electricity, which will gradually but long-term affect price levels for most customers. High energy consumption has also increased costs for enterprises in various sectors, and in a market economy, ultimately, consumers pay for everything.

Consumers themselves have also received larger bills, but these reflect the volume of consumption rather than price changes. Average heating tariffs in January were 4.1% higher than a year ago, while electricity prices were 8.6% higher.

Stores monitor consumer wages

Karlis Purgailis, economist
– Inflation in Latvia is still higher than the eurozone average. Price increases in Latvia are held back by rising energy resource prices, services, and food, as well as labor costs. Although the decrease in energy resource prices helped keep inflation in Europe at 1.7%, these costs continue to rise in Latvia.

The rise in electricity and heating prices weakens the global deflationary effect in energy. Fuel prices in Latvia are still lower than a year ago, which reduces cost pressures on businesses and the transport sector and positively affects consumer goods and food prices.

In the food and non-alcoholic beverage segment, the seasonal effect related to the end of Christmas promotions and price leveling is still visible. Inflation in the services sector remains significantly higher than price growth for goods. In January, the average price change for services over the last 12 months compared to the previous 12 months increased by 5.7%, while for goods it was only 3%. One of the main factors is the pace of wage growth, which in Latvia is significantly higher than the European average (in terms of pace, not the wages themselves). The average wage growth will continue this year, meaning the services sector will remain a strong driver of inflation.

In the Baltic context, Latvia is not much different from its neighbors. In Lithuania, January inflation reached 2.8%, while in Estonia it was 2.9%. There, the dynamics of prices are still influenced by last year's VAT increase, which immediately raised inflation by about two percentage points.

This year, inflation in Latvia will continue to decline, dropping to 2.3% on an annual basis, which will still be higher than the eurozone average. Prices in various product categories are currently rising moderately, while in some groups they are even decreasing. At the same time, in the services sector, wage growth will continue to exert pressure on prices. The average salary in 2026 is likely to increase by 6.5%, which means further growth in the purchasing power of the population. Incomes are growing faster than prices, and purchasing power is already significantly higher than a year ago.