Producer prices on the rise; rate faster for exports

The producer price index continued to rise month-on-month in February. The rise affected producer prices of both production sold in the domestic market and exports, however, as observed recently, there is a sharp difference between the two price dynamics. The producer prices of exports continue to rise as the global prices increase and register such a rise even year-on-year, albeit significantly lagging behind the highest level in mid-2008. The global price dynamics had an increasing effect even on goods sold domestically, but, as demand remained weak and domestic labour costs continued to fall, the producer price level for domestic products grew only slightly.

In addition to the fact that in the countries to which we export, growth is gradually resuming and demand is on the rise, the increase in export product prices has been determined also by a gradual rise in global raw material prices, which affects prices in Latvia with a slight delay.

At the beginning of the year, the global prices of ferrous metals grew thus affecting metal prices in Latvia as well. The food price index calculated by the UN Food and Agriculture Organization has stabilized since January, even dropping slightly. That is the case primarily on account of grain price dynamics and the drop in milk prices, which had increased quite rapidly at the end of last year causing a milk price increases in Latvia as well. After rising in January, food prices decreased again. It is expected that as food product stores globally, and particularly in Europe, remain at a high level, future rises in food prices are expected to be moderate.

It is expected that the dynamics of producer prices will continue to be affected by these factors in the future as well. As world prices grow, the producer prices of exports are likely to continue to rise, but the dropping labour costs in Latvia will continue to give Latvian businesses an advantage in their competition with the producers of other countries. In the domestic market, the low demand and dropping labour costs will continue to exert a downward pressure on prices but supply factors will have an important weakening effect on the decreasing trend for prices.