The annual inflation continues to drop

The annual inflation in February 2013 continued to drop and was at 0.3%, with prices going down 0.1% month-on-month. Inflation was positively affected by the drop in regulated prices, since, as expected, the thermal energy tariffs went down as a result of the sales price of natural gas. The discount sales of wearing apparel and footwear still dominated over the regular-price sales of the goods of the new season, impacting core inflation: after an uncharacteristically substantial drop in prices within this group of goods in January, in February they went down a further 0.6% (on account of footwear prices). It is evident that  the demand-side pressure has not increased and as yet there is no trend of the prices of many goods and services reverting to their previous levels .

Fluctuations in global oil prices in February impacted inflation upward, yet the rise stopped at the end of the month and the positive trends in oil prices in the first week of March invite the supposition that no rise in fuel prices will be observed in the Latvian market in March. The rate of annual increase of fuel prices also dropped: in 2012, oil prices rose at a faster rate in this period, continuing in March.

According to the information of the UN Food and Agriculture Organization, the global food prices were stable and lower overall than in February 2012.  In the most important groups of goods that could have a greater impact on the Latvian market, prices continued to rise in the dairy product group (this is caused by the limited supply) balanced by a substantial drop in sugar prices as a result of the expected rise in production both in the traditional sugar exporters and in other markets as well as the drop in grain prices determined by a drop in the prices of wheat (caused in turn by positive harvest predictions in the US). A slight rise in the Latvian market was experienced in February in the consumer prices of foodstuffs that resulted from a rise in the prices of vegetables and bread; dairy products, in contrast to the global trend, became cheaper. The prices of agricultural goods futures are currently lower than a couple of months ago, thus pointing at least to stabilization in prices in this market in the coming periods.

The month-on-month rise in consumer goods in Latvia will in all likelihood be positive in March, because more varieties of the new season’s vegetables (including local ones) will become available and the first harvest usually is associated with a higher price level. The sales of the wearing apparel and footwear of the winter season will by and large be over and goods of the new season will have higher prices. A positive development is the prediction of AS "Latvijas Gāze" that no change is expected in the prices of natural gas and thermal energy; both account for a substantial part of regulated prices.

The average annual inflation level this year could be lower than the predicted 2.0%, even if the possibly substantial rises in the prices of electrical energy that have been mentioned by several sources are taken into account. Albeit the share of the mandatory procurement component (OIK) in the overall tariff of electrical energy (including the prices of transmission and distribution services, taxes and the price of electrical energy itself) is expected to grow in April, according to information of AS "Latvenergo", the tariffs will not yet be changed on account of the reduction of the electrical energy component itself and will grow only with the liberalization of the market expected in autumn.  The rises in electrical energy prices could to a great extent be balanced by positive predictions regarding natural gas and thermal energy prices (as of May, a drop in thermal energy prices is expected in Riga and in Rēzekne, as evidenced by the applications by the producers of thermal energy in these cities to the Public Services Regulatory Commission).