No surprises: inflation is low

In November, the average level of prices in Latvia remained unchanged month on month, with annual inflation falling to 1.0%. 

The start of 2023 with inflation above 20% painted a slightly frightening picture of the new year; however, already at the beginning of 2023, Latvijas Banka projected that inflation would drop below 3% towards the end of the year.

The world faced plenty of shocks this year; nevertheless, economic agents have managed to cope with them well enough. Global food and energy prices have been volatile, but their rise has currently subsided, with the prices of certain resources declining. The state support programmes aimed at mitigating the increase in prices are no longer as comprehensive as during the previous year, since, for example, the heat energy prices that affect consumers are not so high either.

Monetary policy aimed at preventing long-lasting high inflation has also contributed to curbing inflation. So, step by step, with the year coming to its close, Latvia has greeted the low inflation figures projected in early 2023.

The current question is how far inflation will fall further. Over the coming months, we will, most likely, see slightly lower inflation rates; nevertheless, we expect a minor price increase to persist. Next year, we also expect a moderate price growth driven by both the global resource market trends and the domestic economic situation. A relatively strong wage increase will remain a significant domestic factor over the next year as well. It will be driven by the minimum wage growth and the persistent labour shortage.

Thinking back to the old days when prices were lower, we should bear in mind that wages were also considerably lower at that time. Another question concerns the pace of growth in various benefits and pensions. Nevertheless, we have survived the massive wave of price increases and we can now recover in calmer waters.

APA: Opmane, I. (2024, 25. jun.). No surprises: inflation is low. Taken from https://www.macroeconomics.lv/node/6204
MLA: Opmane, Ieva. "No surprises: inflation is low" www.macroeconomics.lv. Tīmeklis. 25.06.2024. <https://www.macroeconomics.lv/node/6204>.

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