Consumer prices decreased by 0.2% y/y and by 0.8% m/m in August, according to a report by Central Statistical Bureau. Prior to that, July and June (0.3% y/y and 0.2% y/y CPI, respectively) follow two consecutive months that y/y deflation was posted. Moving average 12 months inflation was 0.6% in August (0.8% in July, 0.9% in June).

In y/y terms, in August, the prices of goods declined by 0.3% 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.  

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 data by far has beaten these expectations. Central bank already revised the inflation forecast for 2013 from previous 2% to 1%.

Since then a Eurozone convergence report issued by EC and ECB showed that Latvia beats the inflation criteria for euro adoption by a large margin.

Last month, FinMin spokeswoman Ieva Puzule said that the ministry 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.