A drop in prices in August, as usual

A drop in prices is traditionally observed in August and this year as well the average price level dropped by 0.3%, primarily as a result of seasonal discounts. The annual inflation, on the other hand, rose from 4.3% to 4.7% on account of base effect.

Vegetable prices dropped for a second consecutive month, sliding much below the previous year's level when prices rose because of the great demand from Russia. Seasonal sales continued for footwear, whereas for wearing apparel they have (untypically) already concluded. A great role in the abatement of price rises has been played by the trend of global price stabilization. Food prices dropped 2.2% over a month, which was determined by a month-on-month drop in vegetable prices of 20.9% and a year-on-year drop of 10.5%. The trade price of natural gas continued to rise and, consequently, there was a rise in heating tariffs (1.3% over a month), which exceed those at the end of the previous heating season (in March) by 6.8%, yet are 2.5% lower year-on-year. The drop in oil prices in August was also reflected in fuel prices in Latvia, which fell 0.6% yet climbed substantially, 18.6%, year-on-year.

The stabilizing of global prices has had a beneficial effect on both food prices and total inflation. The future of global prices, however, is uncertain. Despite announcements of reduced predictions of growth in the US and the euro area, oil prices have yet again climbed, to 119 US dollars per barrel, which is only 7% below the highest level recorded in April. Food prices have stabilized at a very high level, with market participants awaiting news on this year's harvest.

No notable price rises are expected in the next few months. The increased prices for utilities will have a dampening effect on the demand of non-essential goods and services, particularly after the beginning of the heating season. The weak demand will thus prevent businesses from raising prices. The situation regarding gas prices is different: the substantial rise in energy resource prices at the beginning of this year will continue to be reflected in rising prices of natural gas, as gas prices are tied to the last-nine-month dynamics of global oil product prices. A significant drop in annual inflation is thus not to be expected by the end of the year  inflation will return to its 2-3% range only next year.

APA: Kalnbērziņa, K. (2020, 29. sep.). A drop in prices in August, as usual. Taken from https://www.macroeconomics.lv/node/2299
MLA: Kalnbērziņa, Krista. "A drop in prices in August, as usual" www.macroeconomics.lv. Tīmeklis. 29.09.2020. <https://www.macroeconomics.lv/node/2299>.

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