Business Banking analysts: Deflation is expected in Latvia in the...

Banking analysts: Deflation is expected in Latvia in the coming months as well – Banking news – Financenet


SEB banka’s macroeconomic expert Dainis Gašpuitis noted to LETA that in the coming months the dynamics of the price level will be most affected by the recovery of the oil price, which will slightly revive inflation. At the same time, this factor will be stronger next year as the global economy picks up more strongly.

“The removal of restrictions will also allow certain sectors to recover and, consequently, their price levels, such as catering, tourism-related goods and services. However, this will not change the overall situation, where the impact of weaker demand will be felt,” said Gašpuitis.

He mentioned that a sufficient number of consumers will remain cautious about spending, both when assessing the further development of the economy and when thinking about health.

According to Gaspuitt’s forecast, food prices will continue to rise at a moderate pace.

“The situation in the world regarding the tensions caused by restrictions is easing. But the recovery of oil prices will keep up the pressure.

He also mentioned that there have been frequent recent concerns about the impact of money-printing measures on inflation, but that the impact of stimulus policies on inflation is very limited in the current economic environment. “Rather, it has been able to rule out the rooting of deflation,” Gašpuitis said.

SEB banka’s macroeconomic expert pointed out that the global economic weakness has lowered inflation expectations.

“‘Forecasts promise a recovery in inflation, but at lower levels than before the pandemic. Latvia will be characterized by deflation in the coming months, which could end at the end of the year,” said Gašpuitis, adding that the average annual inflation in Latvia this year could be 0.3%. but next year it will rise to 2%.

Swedbank economist Laimdota Komare told LETA that during the year consumer prices were most significantly affected by the fall in fuel prices, which fell by 16%, although fuel prices rose sharply last month – by 9.2%. In July, the price of Brent oil exceeded 40 US dollars per barrel, which is twice as high as the lowest point this year, but still well below last year’s level.

Komare mentioned that the decline in non-food prices in June 2020 was also influenced by clothing and footwear prices. Back in May, the prices of both categories changed during the month, uncharacteristic of the usual seasonal changes, but in June the changes were close to the usual ones.

“The overall price level also continues to be lowered by housing-related costs, ie utilities. As of June 1, JSC” Rīgas siltums “introduced a new heat energy tariff. Most likely, most consumers will be able to observe it with the beginning of the heating season, but statistically “These changes have already been recorded as a 2% decrease. It is possible that in July electricity bills will be lower for those consumers who have chosen the variable exchange price option, because on July 6, a negative wholesale electricity price was observed in Latvia,” said Komare.

She also pointed out that the June statistics did not yet fully reflect all the price changes that would have been affected by the Covid-19 crisis. For example, data on passenger air transport, cinema and theater services and complex leisure services are still not available. “However, we can already see that compared to June last year, the prices of hotel and guest house services have fallen by almost 22%,” said Komare.


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