Producer prices in Latvia rise slower than elsewhere; competitiveness continues to improve
Producer prices continued to rise in May: they were 1.8% higher than in April and 3.3% higher than a year ago. The rise was primarily determined by the rising prices in the export markets as well as the higher cost of energy resources domestically, as a result of external factors. However, the high rate of unemployment and the drop in salaries effected a drop in the producer prices of some good sold in the domestic market. The producer prices of goods sold in the domestic market thus continued to be 0.6% lower than a year ago.
Even though the annual rise in the producer price index has been positive since April, it is slower than in the main trading partners. Thus the competitiveness of Latvia's businesses continues to improve. The drop in the real effective rate, which is calculated on the basis of the producer prices, continued to increase and in April it was already 10.2% lower than a year ago. The improving competitiveness is also reflected in the stable growth of export indicators.
In the near future, both the high domestic unemployment rate and the rise in prices abroad is expected to continue to affect producer price changes. In June moreover there has been a substantial increase in the tariffs on natural gas for the industrial clients. The producer prices of energy resources have therefore climbed, which will have a substantial negative effect on price drops. The most important risks regarding price developments are still related to insecurity regarding the recovery of foreign demand, especially in the euro zone.