Producer prices stabilize production for the domestic market

In March 2013, producer prices did not rise substantially month-on-month (+0.1%) and continued to even drop for the production sold domestically (by 0.4%), because for several months, energy production prices remained their main reducing component. Since the drop in energy production prices exceeded the one observed in March a year ago, the year-on-year rise in production sold domestically dropped to 0.8% affecting the level of consumer prices ever less.

The rate of year-on-year rise of total producer price index grew to 2.2% partly because of base factors and it was primarily affected by the price changes of manufacturing output produced for export. In March of 2012, a drop in producer prices was observed for material-dependent industries, such as wood pulp and metal production (the price changes for export production in metal manufacturing can be deduced from the difference between the total price index and that of the production sold domestically). In March of this year a drop was observed in the prices of several metal and wood pulp resources on the global market, but that did not cause a drop in the producer prices of exported production. In metal manufacturing, it could be impacted by the reduced operations of “Liepājas Metalurgs” where the costs of maintaining capacity prevent a reduction in the prices of the production to be sold. Since the above industrial branches sell much of their production in the external market and their output does not include much consumer goods, they did not have a substantial effect on the producer price index of goods sold domestically or the consumer price level. The month-on-month and year-on-year appreciation of exported manufacturing production was substantially affected also by other branches, e.g., chemical industry and wearing apparel production.

Since a downward trend has been observed in the global oil prices in April, then the so-called moving average price of oil products, including mazout, could remain stable or drop slightly in the near future. It could continue to have a positive effect on the sales price of energy resources in Latvia, similar to what was observed at the beginning of the year. This factor would at least partially compensate the negative impact of the rise in power prices for the industrial sector and have a positive effect on the domestic agriculture and food price dynamic from the point of view of costs (i.e. excluding the impact of weather conditions and harvest). A pressure of salaries on the producer and consumer price levels is also not likely to resume in the near future, because the export market is not developing rapidly at the moment and a substantial increase in external demand is not expected, therefore manufacturers will try as much as possible to keep the costs per production unit from rising.