On December 2008 Inflation Data

As the economic growth moderated at a more rapid rate than initially expected, towards the end of the year the dropping inflation rate outpaced the forecasts, reaching a mere 10.5% in December. The sharp fall resulted from a strong decrease in demand as well as a decline in the global energy prices, which accounted for cost pressures easing notably. Since last May when inflation peaked at almost 18%, it has shrunk by more than one third. In view of the rapid increase in inflation at the beginning of last year and a notable downturn in the consumer price rise in the second half of the year, the average inflation rate for 2008 was 15.4%.

As demand continued to decline notably and oil price dynamics had a dampening effect on the energy prices, the inflation rate is expected to decrease further, undergoing a rapid drop in the near future and reaching a single-digit figure as early as in the first months of the year. It is also expected that the easing inflation in many Latvian trade partners will favourably affect the consumer price rise moderation in Latvia. Although the changes in tax tariffs made early this year are likely to result in a temporary increase in the annual inflation: the January inflation rate might slightly exceed that of last December, the downward inflation trend is expected to resume already this February, resulting in single-digit inflation in early spring. Hence the average annual inflation for 2009 may possibly not exceed 6.5%.