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Wednesday, March 26, 2008

Latvia Producer Prices February 2008

Producer prices in Latvian industry rose by 1.7% month on month in February, according to data from the Latvian Central Statistical Bureau. Year on year producer prices increased by 11.4% over February 2007. On the monthly basis, the biggest increase was in tariffs for electricity, gas, steam and hot water supply (by 0.6 percentage points). The rise in prices for the manufacture of basic metals increased the overall level of producer prices by 0.5 percentage points, while the manufacture of food products and beverages was responsible for 0.4 percentage points. However, there was a decrease (by 0.3 percentage points) in the price of manufacture of wood and wood products (except furniture).

In annual terms the manufacture of food products and beverages made the biggest impact on the overall level of producer prices, increasing by 4.7 percentage points. The increase of the tariffs of electricity, gas, steam and hot water supply raised the overall price level by 1.7 percentage points.

Prices in the export sector were up 5.7% year on year, and 1.5% month on month. This last detail is important, because it should be noted in the chart above that both total producer prices and prices in the export sector alone have both - hopefully only temporarily - ceased their downward march in terms of year on year rates of increase. Like this it will be hard to sustain export competitiveness.


jekabs said...

Good blog!!

Why do you write that the prices have "hopefully" ceased their March downward? I seem to think that unchecked inflation is a bad thing. Are you hopeful that inflation continues high because that would be a sign of credit restoration from outside banks, and also of an economic recovery?

Edward Hugh said...

"Why do you write that the prices have "hopefully" ceased their March downward?"

Sorry, I think there is a misunderstanding here. I am saying "hopefully" the pause in the downward march in prices is only temporary, because if it isn't...

Inflation needs to be bled out of this system one way or another, and at this point in time there is no positive inflation. The Baltic economies are now about to have to reinvent themselves as export driven ones. To be able to drive the whole of GDP growth on exports they need very competitive external prices, since they have a currency peg the only way to resolve the issue without a very violent "correction" is by bringing DOWN export prices. It is the one hope they have.

jekabs said...

I see. I just mis-read your original post. Thanks for the clarification.

So I now see that if Latvia's export prices fall (prices Latvian firms get for selling their goods abroad) that some inflationary pressure will be relieved. From what I can tell, Latvia exports Timber products, Metals, Machinery, Textiles. So, by charging lower prices on those products in the export markets the Latvian firms will be forced to consider lowering their costs (either becoming more efficient or reducing their employees' pay increases) which will then trickle through the Latvian economy as less export-Euro-fueled buying in Latvia, reducing inflation.

Just trying to "think out loud"...

Edward Hugh said...

"Just trying to "think out loud"..."

Well don't worry, there is certainly no harm in that, and yep, this is more or less the idea, or at least part of it.