The 'low-price basket' initiative, as previously anticipated, has not had a significant impact on the overall situation with food prices in Latvia, as overall price changes are determined by global trends, said banking economists.
As stated by the chief economist of Citadele Bank, Karlis Purgailis, as previously forecasted, the 'low-price basket' has not proven to be a miracle solution to the problem of food prices. 'There are no signs that this initiative has radically changed the overall situation with food prices in Latvia over the past year, as price dynamics are still largely determined by seasonality, fluctuations in global food prices, energy resource costs, and the competitive environment in the market,' he said.
Purgailis added that in April of this year, food and non-alcoholic beverage prices in Latvia were 0.3% lower than a year ago; however, this was mainly influenced by a significant drop in prices in certain product categories, while prices in other product groups continued to rise. Therefore, the positive effect cannot be automatically attributed solely to the 'low-price basket' initiative.
At the same time, the initiative cannot be called a complete failure, as it has brought practical benefits to consumers looking for the cheapest staple products, making it easier for these consumers to find low-priced items.
'Overall, this initiative can be assessed as the right direction, but a weak tool for influencing overall food prices. It is good short-term support for consumers, but not a substitute for deeper changes in competition, supply chains, and price transparency,' said the Citadele economist.
According to the chief economist of SEB Bank, Dainis Gašpuitis, last year the conditions for stabilizing food price levels in Latvia prevailed, and a similar trend was observed in the eurozone in the second half of the year. In turn, in Lithuania and Estonia, the price level even showed a slight decrease.
He added that a more pronounced change in trends has been observed since January of this year, when prices in the eurozone, Lithuania, and Estonia sharply surged, with the eurozone still experiencing growth, while in Latvia it is declining. 'Considering the changes of recent months, the level of food prices in Latvia has remained roughly the same over the past year, but has increased in Estonia and Lithuania, as well as on average in the eurozone,' the economist clarified.
Gašpuitis expressed the opinion that the idea of regulating food prices has evolved into more reasonable initiatives. The low-price basket for food is a compromise between political, business, and social goals; however, it will not influence food price levels in the long term. Measures for monitoring and comparing prices are beneficial for competition, which is why more rational initiatives have been implemented that improve market transparency and forced traders to adjust their policies.
He also mentioned that the expectations that the 'low-price basket' would lower prices were misguided from the very beginning. In the longer term, the focus should be on ensuring that the level of food prices and their changes in Latvia are proportional to what is happening in Europe.
The chief economist of Luminor Bank, Peteris Straujinsh, told the LETA agency that the dynamics of food prices changed last year. In April of last year, the inflation rate for food prices, excluding non-alcoholic beverages, was the highest since mid-2023 at 6.4%, while in April of this year, food prices were 1% lower than a year ago.
The economist explained that the main reason for this is events in the commodity markets. At the beginning of this year, the price of wheat on the Paris exchange fell below 200 euros per ton, which is about the same as the average in the previous decade from 2011 to 2020, indicating that the price is very low in real terms.
'One of the big bubbles of this decade has burst; prices for this product, as well as for skim milk, are friendly to consumers. Over the past three years, there have even been multiple price spikes for some 'exotic' agricultural products, such as olive oil and cocoa beans, but calm has also reigned in these markets,' Straujinsh said.
According to the economist, the 'low-price basket' has a very dynamic background, which creates a lot of 'noise' in the data and hinders the assessment of the exact role of this basket in forming price levels. At the same time, it can be said with certainty that political decisions were not the determining factor that reduced food price inflation from 6.4% to -1%. They could have only had an additional influence, which did not significantly change the situation with food prices in Latvia.
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