Food producer prices posted another moderate rise in September

Producer prices in Latvia continued to rise also in September increasing 0.5% month-on-month and 7.1% year-on-year.

The primary driver behind the month-on-month changes, with 0.4 percentage points of the total, was food prices. They rose both for exported goods and those sold on the domestic market, particularly for wheat and combined with the local anxiety-driven demand for buckwheat, which in turned stepped up the demand for other grain products as well. Other imported raw materials, including natural gas, followed the opposite development trend: the production of energy resources in September became cheaper by 1.9%, decreasing the rise in prices of products sold domestically by 0.8 percentage points. The still dropping US dollar has also acted to moderate the rise in imported raw material prices.

Year-on-year producer prices have risen at a relatively fast rate as a result of the global price rise, yet the annual rate has abated, rising a mere 0.1 percentage point in September. The rise in wood pulp and metal prices, particularly over the past year, has opened the opportunity for exporting enterprises to grow their revenues.

In the near future, a further steep rise in producer prices is not expected: the rise in the euro exchange rate against the U.S. dollar as well as uncertainty regarding the development of the US economy will act to moderate both any rise in exported production and the influence of global prices on the costs of production sold domestically. The sales price of natural gas has continued to drop in October, which, in addition to the decrease observed in September, has helped to reduce the costs of energy resource production. Over the next few months we can expect to observe the effect of global food prices, particularly those of grain, on price rises, yet it might abate: according to the Food and Agricultural Agency (FAO), the overproduction of the past few years have resulted in grain stores that are quite substantial and thus the total supply adequate notwithstanding the predictions of a 4.8% lower grain harvest this year.