September inflation data bring surprises

The September 2014 inflation trend in Latvia differed from what could have been expected as a result of a combination of factors such as the world oil and food prices, slow growth and low inflation in the euro area countries as well as the Russian trade limitations.  The trend followed by Latvian consumer goods was also opposite to the expectations of slower growth and shrinking inflation expectations. The month-on-month rise in prices reached 0.5%, which would not be atypical for the season but is greater than expected according to the economic conditions and thus the year-on-year inflation reached 1.0%.

In September, in the development of the annual inflation the reducing influence of external factors was not thoroughly felt and the overall annual inflation slightly grew (to 1.0%).

The world oil prices in September fell gradually and in the second half of the month held at less than 100 US dollars per barrel and, even though the strengthening of the dollar counteracted somewhat the reducing influence of oil prices on inflation, the fuel prices dropped slightly. Yet against the overall background of the development of oil prices, the drop in fuel prices is rather sluggish.  The beginning of October indicates a further reduction in oil prices and it could get reflected in the inflation of October. Even though the price of oil in euro has dropped by almost 9% since January (in September, it had dropped by almost 6%), in September the price of fuel was a mere 1.3% lower than in January.

The level of prices of foodstuffs also dropped only slightly in Latvia. Even though the prices of dairy products fell by 7.3% (the drop may have been the result to the impact of Russian trade sanctions), the prices of several other food products developed in opposition to the global and seasonal trends. Thus, for instance, the prices of cereals and their products grew. Such a price trend does not really match the outlook by the World Food and Agriculture Organization (FAO) improved in September regarding the expected stock to use ratio for the season .  The rise in vegetable prices (in contrast to the often observed seasonal drop) reached a monthly increase rate record (+20.8%) in the period of data publishing since 1998. Fruit prices too increased in September in contrast to the usual drop. It is possible that in some cases a drop in prices is impeded by rising costs, which businesses encounter by reducing the volume of production because of the Russian trade sanctions. Yet the effect of a sustained demand cannot be excluded, because trade enterprises may not be interested in reducing the price if the demand does not contract.

In September, the new prices of seasonal wearing apparel and footwear began to dominate. Albeit September is characterized by an appreciation of seasonal wearing apparel and footwear, it was expected slightly lesser than usual under the impact of the low inflation of the main trading partners. And again – in contrast to what was expected, the prices of wearing apparel and footwear rose more rapidly than on average as a result of seasonal factors in September (particularly more rapidly than in periods with a similar rate of economic growth), i.e. by 7.3%: the rise in the prices of wearing apparel reached 5.2% and footwear prices increased by 13.9%,which is the fastest increase since the so-called years of plenty.  Against this background, the rise in the prices of personal care goods  (by 2.8% month-on-month) is also worth mentioning – it is atypical and does not reflect the fact that there is a substantial percentage of import goods in this group of goods, including from euro area countries where inflation is currently low).

At the end of the active tourism season the prices of hospitality services dropped (which is not atypical), yet the prices of catering services continued to grow (by 0.7% month-on-month), which might also indicate a stable level of demand.  

Inflation expectations contracted substantially in August when the impact of Russian trade sanctions on food prices was expected. Even though it did not come to pass, the balance of respondents regarding the expected price dynamic continued to shrink still in September.

Despite an atypical expression of some factors and a slightly higher than expected price rise in September, the average inflation of 2014 will be low but the 2015 inflation is expected higher overall than in 2014, and the greatest contributor there will be energy prices as the electric power market is liberalized.   

APA: Paula, D. (2020, 28. nov.). September inflation data bring surprises . Taken from https://www.macroeconomics.lv/node/2010
MLA: Paula, Daina. "September inflation data bring surprises " www.macroeconomics.lv. Tīmeklis. 28.11.2020. <https://www.macroeconomics.lv/node/2010>.

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