Prices are rising across Europe – is Latvia’s inflation among the highest?
Climbing prices of energy resources and food tell a Europe-wide story. Some countries experience more pronounced price hikes, while in other countries they are less pronounced. According to the data released by the Central Statistical Bureau, Latvia saw consumer prices grow by 6% in October year-on-year, and it was the transport-related fuel costs and food prices that registered the steepest rise. Meanwhile, the flash estimate of the Harmonised Index of Consumer Prices for October carried out by Eurostat suggests that the inflation witnessed by the neighbouring countries Lithuania and Estonia was even higher.
lthough inflation in various European countries is driven by similar factors, the magnitude of their impact and the speed of their transmission to the economy differ. The approaching season of winter and heating turns the bleak picture of the immediate future even starker. Moreover, since different economic sectors are intertwined, the rising energy prices entail not only the fact that fuel, natural gas and electricity are becoming more expensive. The increased costs of these resources in the context of supply chain restrictions and elevated container shipping prices push up prices of other goods and services over time.
Although the annual increase in inflation by 6% in October might seem a very high rate (which will likely continue to edge up towards the end of the year), the assessment of the projections concerning the factors contributing to price changes leaves the door open for expectations related to more moderate pickup in inflation in the second half of 2022 on account of a more modest price rise of natural gas and other energy resources.
At the same time, even the Latvian economy affected by the pandemic-related restrictions has experienced an average wage increase, which is likely to exceed inflation this year and next year.
Wages or premiums paid to employees representing several professions of the public sector have already been raised or they are expected to be increased. Representatives of several private sector industries, particularly those active in manufacturing and construction, point to the lack of adequately skilled labour that exerts upward pressure on wages also in this sector. This is not certainly experienced by everyone; therefore, the purchasing power of certain population groups will decrease.