Latvian Producer Prices March 2008

Compared to February 2008, Latvian producer prices were up in March by 0.6%, according to data from the Central Statistical Bureau of Latvia. Over the year (ie compared to March 2007) producer prices have increased by 10.5%. As we can see from the chart below producer prices had been falling, but the rate of increase has now remained stubbornly flat since the end of last year. This is not good news, and especially not in the export sector, where - if you they to maintain the euro-lat peg - they need negative price increases over a period of time to restore lost competitiveness.




According to the statistics office:

Compared to February, the overall level of producer prices in March 2008 was mostly effected (by 0.4 percentage points in each activity) by the increase of the tariffs of electricity, gas, steam and hot water supply (mostly in the steam and hot water supply and in the distribution of gaseous fuels) and by the price rise in the manufacture of basic metals. However, the price decrease in the manufacture of food products and beverages (mainly in the manufacture of dairy products and cheese), in the manufacture of fabricated metal products, except machinery and equipment, in the manufacture of furniture; manufacturing n.e.c. lowered the overall level of producer prices by 0.1 percentage point in each activity.


Over the year the price increase in the manufacture of food products and beverages left the biggest impact on the overall level of producer prices, increasing it by 4.3 percentage points. The increase of the tariffs of electricity, gas, steam and hot water supply raised the overall price level by 2.0 percentage points. The price rose in the manufacture of furniture; manufacture n.e.c. increased the overall price level by 0.7 percentage points, in publishing, printing and reproduction of recorded media, in the manufacture of other non-metallic mineral products, as well as in the manufacture of basic metals – by 0.5 percentage points in each activity.

Latvia Inflation March 2008

Latvia's consumer prices rose again in March, hitting an annual rate of 16.8 percent due in part to the increasing cost of services, according to data today from the statistics office. This was the 10th month in a row that the rate of annual price increase hasrisen in Latvia, keeping it at the top of the European Union inflation Leahue. Month-on-month, prices in March in rose 1.5 percent.




Food prices continued to increase, soaring by 20.8 percent from March 2007. Housing costs were up by 25 percent, while alcohol and tobacco are 45 percent more expensive than a year ago.

A comparative view of Baltic inflation is also quite revealing. As can be seen in the chart below, Latvian inflation is head and shoulders out in front, though this is one competition noone is very happy to be winning.

Latvia Has Budget Surplus in Q1 2008

Latvia posted a provisional budget surplus of about 70 million lati ($158 million) in the first three months of 2008, the state treasury said today. The government had a provisional surplus of about 2 million lati in the month of March. Official budget figures will be released in mid-April, the treasury said.

Latvia's economy is slowing rapidly and while a budget surplus of about 1 percent of gross domestic product had been envisaged for this year this now seems unlikely to be achieved. Indeed there has been some discussion as to whether it might not in fact be advisable - given the rate of the slowdown in Latvia - to move sooner rather than later into suplus to try to avoid the now much feared "hard landing". Be that as it may we are still at this point in surplus, although the situation is more than likely going to change as the economy slows and revenues decline.

``The pace of growth is no longer as strong as last year, when revenue in the first quarter grew 26 percent,'' Finance Minister Atis Slatkeris said in the statement. ``Second quarter results will show if this pace of growth will remain for a longer period of time,''

A deficit now seems quite probable, since it has been estimated that Latvia would have a deficit equal to 1.5 percent of GDP this year on economic growth of 5 percent (which is the latest Latvian government growth forecast for 2008 made by Prime Minister Ivars Godmanis earlier this week), and my feeling is we are already way below that rate.

Latvia Industrial Output February 2008

Latvian industrial output again showed substantial signs of contraction in year on year terms in February, even if on a month on month basis, and as compared to January 2007, industrial production rose by 1.3%, according to the seasonally adjusted data from the Central Statistical Bureau. In mining and quarrying there was an increase of 4.3%, and in manufacturing of 1.5%, while in electricity, gas and water supply decreased by 6.8%.




Compared to February 2007 however, industrial output in February - adjusted for changes in the number of working days - decreased by 4.7%. In manufacturing there was a decrease of 1%, in electricity, gas and water of 10%, while in mining and quarrying the volume of output increased by 31.4%. So while manufacturing is still contracting on annual basis, it is perhaps doing so at a slightly slower rate. As is becoming typical at the moment, we need to see just a bit more data before reaching any strong conclusions.

Latvia Retail Sales February 2008

As in the case of Estonia, retail sales in Latvia experienced something of a rebound in February, with an increase in sales after two consective months of contraction (seasonally corrected figures), according to data out today from Latvijas Statistika. On a year on year basis sales were up by 1 percent in February, following a year on year contraction of 0.7% in January. Compared to the combined months of January – February 2007, in January and February combined retail trade turnover increased by 0.2%. I think here we should be thankful for small mercies, since the situation has consolidated rather, and not deteriorated further. However the increase was rather more moderate than the 4% year on year increase which took place in Estonia.



Apart from the general point which I made in the case of Estonia that, apart from noting the fact, we really need to wait a few more months to see where all this is leading before trying to draw any lasting conclusions, I also think that it is worth bearing in mind, as in the case of Estonia, that real wages (derived by subtracting the monthly rate of inflation from the rise in money wages) were still rising at an annual rate of 11.1% back in December (which is the last month for which we have data at this point), although as can be seen in the chart the rate of increase is decelerating rapidly (although again this is as much a by-product of the rapid acceleration in Latvian inflation as it is of anything else, since money wages were still rising at a 25.2% annual rate in December). So when we come to think about retail sales we should remember that for the time being people continue to have more money in their pockets, although as inflation comes under control this situation is almost certainly not going to last, and when it doesn't then that is when I think we will see the real impact on retail sales.

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.

Latvia Inflation February 2008

Latvian inflation accelerated to a 16.7 per cent annual rate in February, up from 15.8 per cent in January, Latvijas Statistika said today. Compared to January 2008, the average consumer price level in February 2008 rose by 1.3%. Prices for goods increased by 1.5%, and prices for services rose by 0.9%.



The rise in the prices of tobacco products, heating energy, as well as services related to the housing maintenance and the price decrease of telecommunication services had the greatest impact on consumer price changes in February the statistics office said.