Annual inflation continues to drop in November
The annual inflation dropped to 4.2% in November, with the average consumer price level remaining unchanged month-on-month.
Monthly price rises were observed for tobacco products and alcoholic beverages as the discount sales drew to a close as well as for some food products and fuel as a result of developments in the global market. Inter-seasonal discounts in retail for wearing apparel and footwear had a limiting impact on the monthly inflation – the prices for these goods dropped 1.3% month-on-month.
The drops in global food prices observed in previous months gradually abated in November as indicated by the data on overall price dynamics of some food products, e.g., grains, animal husbandry products and edible oils just published by the U.N. Food and Agriculture Organization. The U.N. Food and Agriculture Organization already earlier expressed an assumption that because of the unstable conditions in the financial and capital markets it was expected that food prices would remain at a high level. The prices of unprocessed foods in Latvia in November rose 3.3% month-on-month, but the global stabilizing of agricultural products had yet to be reflected in the prices of processed foods: they dropped 1.2%. The rise in fuel prices (0.4% month-on-month) can be explained by the still rather high monthly average of oil prices, which in November dropped gradually as oil transports resumed from Libya.
The annual inflation in November was maintained not only because of the changes in fuel prices (albeit their annual growth rate dropped) but also because of the components of core inflation: the aforementioned appreciation of alcohol and tobacco and a missing drop in prices of unregulated services as the domestic demand stabilized in the second half of the year, which had been topical a year ago.
A drop in inflation levels in 2012 will be under a significant impact of a slower rate of economic growth – or even decline – in Latvia's main trading partners. A great pressure of demand on global prices is thus not expected. A slower economic growth in Latvia will also reduce the pressure of demand on inflation. In the coming months, however, possible price changes domestically may be tied to some uncertainty in the area of administered prices (primarily of natural gas and the related heating energy), for, independently of fluctuations in global energy resource prices, several Latvian energy supply businesses have applied to the Public Services Regulatory Commission for tariffs that would include the costs of previous periods in retail prices and thus lead to raised tariffs.