Producer price rises are limited by domestic-market-oriented branches

Producer prices for production sold in the domestic market dropped 0.2% in May, primarily on account of branches related to energy production and household maintenance (water supply, waste management), but in manufacturing producer prices rose by 0.4%. Producer prices rose also for manufacturing production produced for the external market, ensuring a 0.3% overall rise month-on-month and 2.2% year-on-year in producer prices in the industry. The slight rise in the annual growth rate is mostly related to the so-called base effect, for in May of last year the largest monthly drop in producer prices over the year was observed.

Both the relatively peaceful situation in the world’s resources markets and balanced economic growth domestically is conducive to further development of producer prices. Thus the pressure of costs on consumer prices is still not growing.

The world prices of such raw materials important for Latvian industry as metals and wood pulp were mostly stable or slightly dropping in May. Oil prices also were fluctuating in a rather narrow range. Although the index of agricultural and food prices rose slightly, the UN Food and Agriculture Organization’s assessment of the harvest, consumption and changes in stock levels for the marketing year of 2013/2014 is positive  (i.e., these indicators will grow year-on-year) and the rise in stock levels will also ensure as stable price level. Thus there is no pressure of material costs on appreciating production. Food import prices, however retained a small risk, for in June compared to estimate made in May the predictions of Europe’s largest Black Sea region grain exporting countries harvest for the marketing year of 2013/2014 have been slightly lowered in contrast to the harvest expected in the United States. 

As far as domestic factors are concerned, the producer price trend could be rather substantially impacted by weather conditions that currently do not create negative expectations in the agricultural and food market as well as the labour market where also labour costs do not create an additional pressure on any rise in producer price index because, according to the second quarter confidence indicators, business representatives in most cases do not point to a lack of labour as the most important obstacle for continued operations.