Deflation of 0.4% y/y posted in September in Latvia.

By bne IntelliNews October 9, 2013

Consumer prices decreased by 0.4% y/y and by inched by 0.3% m/m in September 2013, according to a report by Central Statistical Bureau. This follows 0.2% y/y deflation seen in August.

Moving average 12 months inflation was 0.4% in September (0.6% in August, 0.8% in July).

In y/y terms in September the prices of goods declined by 0.6% y/y, while the prices of services remained flat. The strongest upwards pressure on prices was by food, alcohol, and tobacco, while the housing, transport, and communication had the strongest negative effect.  

The Bank of Latvia economist Daina Paula commented on that 0.3% m/m increase of the indicator is characteristic to September’s end of summer sales. She also noted a high y/y base for fuel prices that helped inflation to remain lower than last year. The CB economist reiterated that global food and fuel prices remain favorable and compensates demand’s pressure on inflation. Thus, in the coming months the inflation is seen remaining untypically low to the current growth environment.

Previously the Bank of Latvia expected prices’ growth to stabilize at a little above 2% y/y seen in the beginning of 2013 and H1/13 data by far has beaten these expectations. Central bank already revised the inflation forecast for 2013 from previous 2% to 1%.

FinMin expects average annual inflation this year at 0.4%, at 2.3% in 2014, and at 2.5% in 2015. She echoed the Bank of Latvia in saying that very low inflation is unusual for EU’s steepest growing economy. Previously FinMin expected inflation at 1%-1.5% y/y in 2013.

EconMin also believes that inflation is not going to exceed 0.5% y/y in 2013. This is conditioned by the continuation of current global oil and food prices’ trends. 

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