Deflation down under the influence of administered prices
In July, the annual deflation dropped to 0.6%, yet the prices under the previous year's level was for the largest part of the basket of commodities, i.e. 62.2% of prices and services. The shrinking of the deflation was still being determined by the dynamics of the prices of global energy resources and the prices of vegetables that rise because of the unfavourable weather conditions. The greatest drop is still posted by prices of services because of the low demand: they were 4.8% lower than a year ago.
The monthly price rise of 0.2 percentage points was caused by the rising natural gas tariffs. Prices have climbed also on food products, whereas a drop has been observed mostly in the prices of clothing and footwear as a result of seasonal discounts.
With the natural gas tariffs posting a monthly rise of 31.5%, the level of administered prices reduced the annual inflation by 1.1 percentage points. The rise in vegetable prices, which was observed for the entire first half of this year - they have risen 35.9% over the year - also contributed to the drop in deflation. The effect of these price changes on the drop in deflation is also great, amounting to 0.4 percentage points already. A small rise in fuel prices has also been registered, pushing them 11% higher than a year ago, with the deflation going down 0.6 percentage points.
As elsewhere in the world, in Latvia too the rise in energy resource prices causes an inflationary pressure, in our case substantially reducing the overall drop in prices. The food prices will be raised by the unfavourable weather conditions and their influence on the harvest in Latvia and elsewhere in the world, particularly in Russia. Parallel to this, however, the influence of the continually dropping labour costs and low domestic demand, which for a time will maintain dropping prices, especially those of services, will also be felt.