Global food prices continue to drop

A seasonal rise in prices is usually observed in September and this year was no exception: the average price level went up 0.4%. The annual inflation, however, dropped slightly, reaching 4.6%.

At the basis of the monthly inflation was the close of seasonal sales of footwear and wearing apparel and the rise in vegetable prices. Fuel prices were 0.2% lower than in August, reflecting the stabilizing of oil prices. The global price dynamics also found its reflection in food prices: the prices of bread, fresh fish and oil went down month-on-month. As a result of the appreciation of vegetables, however, the overall food price level has been pushed up 0.4% month-on-month. Alcohol and tobacco prices have also risen in September.

Fig. 1. Global food prices, 2002-2004 =100

Source: UN Food and Agriculture Organization

The global price dynamics invite the prediction that Latvia too has no reason to expect a rise in food prices. Food prices have been stabilizing since the beginning of this year, and for the majority of goods they have dropped. The UN Food and Agriculture Organization has announced that the prices of grain have not changed over this year but the overall high price level in the last few months has been the result of rice price rises. The prices of wheat have dropped more than 10% over the last five months, and that was on account of the good harvests in the CIS countries. As a result, import prices have been pushed down on both grain and flour in the entire region, which in turn should be reflected in Latvian retail prices. The prices of sugar and oil have dropped 10% and 14% respectively since the beginning of the year, whereas milk product prices have decreased only slightly, by 1%.

The inflation level can be predicted to drop next year. How big a drop it will depend on the growth indicators in European and other countries as well as on developments in the world commodity markets where uncertainty continues to reign.