Average inflation in 2015 was primarily influenced by global resource prices

According to the Central Statistical Bureau (CSB) data, the consumer price level in December was 0.3% higher than a year ago. The average inflation of 2015 was 0.2%, and over the entire year it was characterized by the trend of falling global prices of important resources (food and energy). The liberalization of the electrical power market for households, a slight rise in indirect taxes, the appreciation of public transportation in Riga and a gradual rise in purchasing power that supported core inflation all worked on the annual average inflation in the opposite direction.

The greatest contributors to the annual average inflation (according to the national CPI) were the prices of fuel and heating energy (a total of -1.2pp), dairy products (almost -0.3pp) and electrical power (0.9pp), but contribution of prices of catering, as well as the recreational and cultural services' prices (a total of about 0.2pp) were one of most important among the services included in core inflation.

Oil prices in the global market continued to drop in December and the first half of January, but the reaction of fuel prices in January was moderated by the slight rise in excise tax.  Iran's entry into the oil market with an increased supply could take place gradually and therefore would not create sharp fluctuations in prices. And yet, the lower is the price of oil, the smaller is its proportion in the energy final consumption prices, which are substantially impacted by other expenses and the tax burden (for instance, the excise tax on fuel is expressed in absolute terms, i.e. EUR/t and not as a percentage of value). Thus, with oil prices dropping to a similar percentage  as last year, their impact on fuel prices can be much less significant.

According to the latest tariff forecasts of AS "Latvijas Gāze" made in December, tariffs were only reduced for households as of January, yet the latest trends in the market of oil products may mean a revision of tariffs also for the industrial consumers in the coming months. The trend of the electrical power market last year also led to slightly lower tariffs in the new (this year's) power supply contracts for households.

The drop in the global prices of energy resources in the course of 2015 had an impact on the spending of residents on fuel and heating energy, therefore their proportion may have dropped slightly in this year's inflation calculations. That would also mean a slightly smaller impact of fluctuations in these prices (both negative and positive) on inflation. 

According to the data of the Food and Agriculture Organization (FAO), world food prices yet again went down in December. The decrease was influenced by the drop in the prices in several groups of goods, including cereals.  An important role here was played by economic policies of Argentina, which include lifting or a substantial reduction of export duties. Thus, pressure on consumer prices is currently not observed also on the part of the food market, which is one of the biggest inflation impacting factors.

The annual core inflation in December remained stable, yet it is observed that there are rather many seasonal sales of manufactured goods taking place and merchants are energetically trying to empty their warehouses of last season's goods. Even though information in mass media suggests that merchants are worried about the low purchasing power of the population and thus cannot maintain the desired price levels, the average income level is rising and therefore the impression of a low purchasing power or its slow rising may be the result of the small market, i.e., the public's aggregate ability to consume.

The Eastern year of the monkey has yet to begin, but the current situation in the global resource markets is quite weird.  Moreover, the growth predictions of a number of the world's largest economies have slightly lowered. That means that the pressure of demand on the world's price level and on the demand of resources will not rise. These factors will probably continue to limit the rise of inflation in Latvia this year as well.  


APA: Paula, D. (2020, 25. nov.). Average inflation in 2015 was primarily influenced by global resource prices . Taken from https://www.macroeconomics.lv/node/1920
MLA: Paula, Daina. "Average inflation in 2015 was primarily influenced by global resource prices " www.macroeconomics.lv. Tīmeklis. 25.11.2020. <https://www.macroeconomics.lv/node/1920>.

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