Analytics, Inflation, Latvia

Gerhards points out that optimism that reigned in the government at that moment was exaggerated. Then-Prime Minister Aigars Kalvitis (People's Party) has recognized this mistake.

"Budget amendments were adopted before the elections; the Bank of Latvia insisted that the budget should be drawn up a surplus, but the suggestion was ignored. Anti-inflation policy was being prepared and I believe that if we had implemented it duly, today we would not be talking about 16.7% inflation, rather about approximately 11%, as in Estonia. Estonians did have a certain advantage though because they had released the administrative prices already a few years earlier. We did not take the decision about administrative prices fast enough and we also did not consider that the fiscal policy should be stricter," Gerhards explains.

Minister reckons that also outside pressure – rise in fuel and food prices – has had influence. Without it, government's actions of that time would have possibly proved right.

As Gerhards admitted, at that time the government was hoping for all factors to be more or less favorable. Already in 2005 Ministry of Economy said that the budget needs to be put in order. A traditional solution, which is very important for such a small economy, is strong fiscal policy and promoting savings. Latvia, unlike Estonia, did not do it.

As reported, the consumer price level in Latvia in February, compared to the same month last year, has increased by 16.7%, including 16.7% for goods and 16.5% for services.

In February, the annual inflation rate of consumer prices continued to increase. It was mainly influenced by soaring prices for tobacco products, milk, cheese and eggs, as well as the surge of heat supply tariffs compared to the fixed tariffs last year. The telecommunications services had the greatest lowering effect on the annual inflation rate due to the prices dropping more rapidly than a year ago.

The average consumer price level, compared to the previous 12 months, has increased by 12%.

Inflation in February, compared to January, was 1.3%, including 1.5% for goods and 0.9% for services.

In February 2007, compared to January 2007, the average consumer price index grew by 0.5%.

The increase in prices for tobacco products, heat energy and other household maintenance services as well as the price drop for telecommunications services had the greatest impact on consumer prices in February.

Prices of tobacco products grew 10.2%, due to the cigarettes with the new excise tax. In January, previous cigarette stock at the old prices was still partially being sold.

Heat energy tariffs increased by 9.2%. Household maintenance services became more expensive – rent increased by 14.2%, water supply – by 3.3%, sewage – 1.8%, waste collection – 1.5%. Other household maintenance services became 11.7% more expensive.

Prices climbed for milk and dairy products by 3.4%, eggs – 8.6%, cereals – 1.4%, confectionery – 2.7%, meat – 1.2%, fish and fish products – 1.3%, sweets – 5%, vegetable oil and grease – 2.4%, other food products – 1.5%, soft drinks – 1.2%.

Prices dropped for fruit – 0.4%, vegetables – 2.2%, as well as sausages and dried meat – 0.7%.

The services of catering, personal care and health care became more expensive. Also the prices of public transport and some financial and notary services have gone up. Vehicle maintenance and repair, medicine goods, flowers, pet food, books and stationery have become more expensive.

Due to sales and reductions, clothing prices dropped. Also mobile telecommunication services became less expensive. Prices dropped for fuel – 1.3%, TV, audio, video and photo devices, sound and image recording devices, telephones.

As reported, last year, the inflation rate was 14.1%, which was the highest in the last 10 years. In 2006, consumer prices increased 6.8%.