deflation

The average rate of consumer prices in 2010 overall was 1.1% lower than a year ago. To a great extent, it resulted from the low domestic demand and drop in producer prices: as labour costs shrank, and productivity rose, businesses could respond to the drop in demand with lower prices.

Comparing the consumer prices of October and September, we see a small rise (0.4%), primarily attributed to the rise in the prices of processed foods, which in turn was accounted for by the rise in global food prices. The October price rise was by and large determined by the price dynamics of grain and milk products. The 12-month inflation reached 1.0%.

The annual average inflation, after which the Maastricht criterion is calculated, in Latvia remained negative in September - i.e. deflation was at -1.8%, and deflation is likewise expected in the year as a whole.

Calculating the price changes year-on-year, inflation of 0.4% was registered after a year's pause. Over the month a 0.4% price rise was also registered while for several groups of goods and services prices continued to drop - a total of 32% of the basket of commodities.

In August the consumer price rate dropped by 0.7%. While a seasonal price drop for the prices of vegetables and clothing is traditional for August, this year this seasonal drop has been supplemented by one in many other groups of goods because of the still low demand and high unemployment. Albeit an important month-to-month drop has been observed, as a result of base effect, i.e. compared to the increasingly lower price rate last year, the annual deflation continued to decrease and the consumer price rate was only 0.3% lower than in August of 2009.

Like the entire economy, the price domain has been bustling with activity of late. With domestic bubbles bursting and the global crisis persisting, belts have been tightened and wages and prices have gone down; as a result of Latvian commodities again becoming competitive, both internationally and domestically, the reliance on imports diminished.

In July, the annual deflation dropped to 0.6%, yet the prices under the previous year's level was for the largest part of the basket of commodities, i.e. 62.2% of prices and services. The shrinking of the deflation was still being determined by the dynamics of the prices of global energy resources and the prices of vegetables that rise because of the unfavourable weather conditions. The greatest drop is still posted by prices of services because of the low demand: they were 4.8% lower than a year ago.

Retail prices in June grew month-on-month - the overall price rate or retail price index (RPI) was 0.4% higher than a month ago. The annual deflation continued to abate quickly, reaching 1.4%. For the majority of goods and services, however, i.e. for 65% or the total basket of commodities, prices were lower than a year ago. Over the course of a year, the prices for unregulated services, food items, and clothing have dropped particularly sharply and are for the most part continuing to drop also month-on-month.

The average level of consumer prices in May continued to fall after an interval of four months. The persistently low domestic demand determined the downturn in prices and the average level of consumer prices in May was 0.1% lower month-on-month and 2.3% lower year-on-year. Prices both of food and various services continued to drop.

In April, the level of consumer prices increased for a second consecutive month and was 0.9% higher than in March. With the exception of energy resources and a seasonal price rise, the overall price level has not changed compared with the previous month. The persistently dropping incomes and the weak domestic demand acted to promote price decreases for almost all services: their price level dropped by 0.4%. Under the influence of the weak demand, a large percentage of food prices also continued to drop.

As in the other two Baltic countries, in Latvia too the rise in fuel prices in March had an important effect on the changes in the overall consumer price level. Any decrease in prices in March was impeded also by seasonal factors: the arrival of the new clothing and footwear collections, end of seasonal sales, and rise in the prices of seasonal vegetables and fruits. Consumer prices rose 0.5% over February.