In August as well prices post a seasonal drop

The August month-on-month drop in consumer prices by 0.8% is to be considered seasonal, because as the bulk of vegetables of the new season appeared for sale, prices in this group of foodstuffs dropped.  Sales of summer footwear were also actively taking place. The price of fuel went up, however, because there continued a gradual rise in oil prices in the global market as a result of the unsolved political conflict in Syria. A 0.2%, year-on-year drop in prices was registered in August because the seasonal drop in vegetable prices was substantially larger than in August last year; the prices of telecommunications services also continued to drop. The greatest impact on the annual drop in inflation, however, was left by the prices of thermal energy.

In contrast to the global trend of food prices and despite the fact that in Latvia as well the purchase prices of grains are dropping, the consumer prices of several processed foodstuffs, including bread and grain products, went up in the Latvian market. The prices of meat and grain products played an important role as contributors to the annual inflation: these components brought up the core inflation slightly, pointing to a rise in purchasing power. Another evidence for increased purchasing power is the month-on-month rises of prices of transport vehicles, which continued dropping for a long time.

The prices of resources and raw materials that have the greatest impact on consumer prices (those of energy resources, agricultural products and food) currently have an opposite dynamic in the global market, overall having an almost neutral impact on the inflation in Latvia; however, as the energy resource price risk is maintained in the global market, the prices of foodstuffs and agricultural goods could increase because of costs.

Figure. The prices of food and energy resources in the global market

Source: FAO, Reuters

In the coming periods, inflation risks are mostly related to external factors (energy resource prices). Of the domestic factors, a significant role in the coming months could be played by pricing policies of businesses, however, in 2013, inflation could remain the lowest registered average annual inflation under conditions of positive growth.