Bank of Latvia: Inflation in Latvia in 2011 was a Result of Taxes and Global Prices
By admin at 18 January, 2012, 10:54 am
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The average consumer price level in December of 2011 remained unchanged, whereas the annual inflation, i.e. consumer price levels compared to December 2010, dropped to 4.0%, reported Bank of Latvia economist Daina Paula.
Writing for the website Macroeconomics.lv, Paula noted that the main contributor was the diminished impact of the prices of fuel and unprocessed foods. “The average rise in consumer prices by 4.4% observed in 2011 was mostly related to the impact of indirect taxes as well as global energy resource and food prices,” she reported.
The Bank of Latvia economist observed that compared to November, the consumer prices in the groups of goods and services characteristic of core inflation rose by a total of 0.3% in December. She wrote, “That could be related to additional demand in the holiday season, because irrespective of the drop in the prices of unprocessed foods, the prices of processed foods rose as did those of alcoholic beverages, tobacco and services of the catering industry.”
Paula also noted that the drop in annual inflation in December was primarily determined by the base effect of the prices of fuel and unprocessed foods: in the corresponding period of the previous year these prices grew much faster. Meanwhile, she reported, the period of high base for the prices of compensated medications ended and that increased the impact of regulated prices on the annual inflation.
Paula summed up her piece for the website by noting that even though the global factors preclude a substantial drop in 2012 in such price groups as food and oil products, their prices are unlikely to continue to rise rapidly. Tensions in the oil producing countries of the Middle East have not been resolved, she noted, yet global consumption – the debt crisis of the European countries notwithstanding – is growing gradually because of the stable growth in other regions of the world, particularly in Asia.
She concluded: “That means that the impact of the above factors will not express itself so sharply also in the price trends in Latvia and will translate into a substantially lower inflation this year. Moreover, the impact of the problems of the European countries affected by the debt crisis is inflation-reducing. Slower global and Latvian economic growth as compared to the rates in 2011 create a smaller pressure on prices both in Latvia and Latvia’s main trading partners. The appreciation of natural gas and heating energy will be an inflation-supporting factor, for the high level of the prices of heavy oil observed in mid-2011 has substantially pushed up the 9-month average indicator to which these tariffs are pegged, albeit with a certain delay. It can therefore be expected that the average annual inflation this year will drop to 2.4%, as predicted previously.”
Link to full text and graph: http://www.macroeconomics.lv/inflation-2011-latvia-result-taxes-and-global-prices.
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