65% of goods and services prices in June lower year-on-year

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 natural gas tariffs were also almost 30% lower than a year ago, but already in the next month they are expected to rise.

Counteracting the price decreases are external factors: i.e. the prices of energy resources are climbing and so are production costs. As the selling price of natural gas continued to rise, heating tariffs were brought up as well, which increased the RPI by 0.3 percentage points. Heating tariffs were already 27% higher than at the end of the previous heating season, in March. In recent months, however, a stabilizing of oil price rises has been observed and the drop in the euro exchange rate, which increased the price of oil products that had to be bought by U.S. dollars, has abated. Thus the rapid rise in fuel prices observed at the beginning of the year has come to an end.

Private consumption in Latvia is still being determined by the high unemployment level, the drop in wages and salaries, and the caution the population is exercising in purchasing and it is developing unevenly. Such trends continue to have a reducing effect on the prices of unregulated services and certain food products, but the rising production costs have a dampening effect on this reduction. Clothing and footwear prices have mostly dropped because of discounts.

According to the a/s "Latvijas Gāze" predictions, a substantial increase in the tariffs of natural gas is expected, which will raise next month's inflation by about 0.2 percentage points. Stabilization of the selling prices of natural gas is expected in the second half of this year, which would also slow down any rise in heating tariffs. It is thus expected that a rise in the prices of energy resources that would include both a rise in fuel prices at the beginning of the year and rise in the tariffs of regulated energy resources, particularly heating energy, will reduce the deflation of this year by a whole percentage point.