Annual inflation rate declines for the sixth month in a row in February
In February, annual inflation rate declined for the sixth month in a row, reaching 1.8%. On monthly basis, prices grew by 0.2%. Service prices have once again taken over as the lead contributor to annual price growth. While goods’ price growth decelerated to 1.1%, service price growth accelerated to 3.6%. More expensive dwelling, health, leisure, catering, insurance and beauty services contributed the most to higher service prices.
In February, similarly as in January, base effects and volatile factors played the main role in the deceleration of the annual inflation rate. Even though in February Brent oil price was 66 dollars per barrel, which is 17% higher than in the same period last year, continuous strengthening of the euro against the dollar outweighed the oil price rise. As a result, over the year, oil price in euros increased only by 1%. In combination with higher excise duties on oil products, fuel prices for consumers increased by about 5%. Global food prices were a tad lower than in last February and food price inflation in Latvia reflected that. Food prices were 1.3% higher as opposed to an average of 6.0% increase in 2017.
In the past six months the annual inflation rate has slowly and consistently decreased. It is expected that the declining trend will come to an end in March when higher excise duties on alcohol come into effect. Annual inflation rate in March will increase but the increase will not be sharp. Faster increase in the annual inflation rate is expected when services prices increasingly start to reflect tightening labour market and especially minimum wage hike as of January 2018. However, with two months of rather weak inflation and continuous worry of the impact of volatile factors, especially the strength of the euro, the current forecast for average annual inflation of 3.7% will be corrected more towards 3.0-3.5%. With lower inflation but wage growth close to 10% the purchasing power will increase faster than expected before.
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