October sees a drop in producer prices of domestically sold production, but a rise in those of exported production

In October 2013, producer prices in Latvia remained at their September level.  A price drop was registered for the production sold domestically (-0.2%), but it was compensated by an identical rise for production sold as exports (+0.2%). The month-on-month drop in the prices of domestically-sold production was determined by a drop in the prices in manufacturing, energy as well as water supply. In products sold as export, all of the above mentioned sectors had a positive effect on the overall changes in producer prices.

A moderate rise in prices was observed in year-on-year terms: in exports by 2.2% and in the domestic market by 0.3%. Both, for production sold domestically and exported, prices rose less than on average in the first ten months of the year. Therefore, producer price dynamics do not create a pressure on consumer prices.  

Month-on-month, there was no change in producer prices in manufacturing. The European Commission's (EC) October business survey data had indicated earlier that the managers' assessment of the selling prices has not increased significantly. The most important upward pressure on producer prices was exerted by the rising producer prices of wood and wood pulp products, which was of the same magnitude as observed in September. Moreover, just as in September, the producer prices of wood and wood pulp products grew much more for the exported than the domestically sold production. Similarly, also in year-on-year terms, the rise in prices of wood and wood pulp products had the largest impact on the overall rise in manufacturing prices.  An upward trend in the producer prices of wood processing has been observed since the end of 2012. This ties in with the EC quarterly survey data: the number of producers that consider shortage of labour as a factor limiting production has also increased during this period, which may point to a rise in labour costs. The upward trend in producer prices may also be related to the shortage of logs, which can lead to an appreciation of the prices of raw materials in the sub-sector, and finally result in an elevated price of the end product (ceteris paribus).

The fall in the producer prices of food, printing and publishing and chemicals had the greatest negative impact on overall month-on-month producer price changes. The EC October business survey data also show a rapid drop in the expected selling prices in the most important of the above-mentioned subsectors – food. Year-on-year, however, food producer prices were the second largest contributor to the manufacturing price rise. The price index of the UN Food and Agriculture Organization, which had been falling as of May of this year, showed a small increase in October, but is still 5.3% below its October 2012 level.  The increase was largely driven by a rapid rise in sugar prices, but prices of other commodity groups also increased. Cereal prices, which kept falling almost throughout all of 2013, rose in October owing to a firm import demand and deteriorating harvest predictions in Argentina and the Black Sea region. World dairy product prices rose slightly, primarily because of the rising demand for whole milk powder in China. In Latvia too experts of the dairy industry report that the average purchase price of milk has risen in October, which means that the month-on-month drop in total food producer prices occurred  on the account of other products.  

Illustration. The month-on-month changes in producer prices and contributions by branch in the domestic market, percentage points

Source: CSB, Bank of Latvia's calculations