Annual headline inflation at 2.0% in the first month of 2018
In January, monthly headline inflation was 0%, thus annual inflation rate stood at 2.0%. Goods’ inflation continued to retreat and goods’ prices grew by 1.5% on annual basis. Slowdown mostly owed to slower food price growth, which reflects global food price trends and the impact of a reduced VAT to Latvian vegetables (from 21% to 5%) introduced from this year. Meanwhile, service price growth accelerated to 3.3% year-on-year. More expensive dwelling, e.g. waste management, and health services than a year ago contributed the most to faster service price growth.
What to watch out for this year
Faster world GDP and demand growth this year could warrant further global food price growth. In the wake of expectations of a more balanced oil market, oil price is expected to be higher than a year ago. Moreover, service prices will be in the spotlight this year. As the experience from our neighbours shows, service prices could grow faster due to a steep minimum wage hike (by 13% from EUR 380 to 430) and further labour market tightening. Also, changes in taxes will have their effect on inflation. Excise duty hikes will exhibit an upward pressure on price growth while VAT reduction for Latvian vegetables and fruits will slightly calm inflation. The forecast for average annual inflation in 2018 is 3.7%.
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