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Inflation is in decline, but experts see signs of growth in Latvia

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«Annual inflation continued to decline in February, which is not a big surprise, considering that prices continued growing rather rapidly. While inflation was surprisingly low in January – around 2% –, it was only 1.8% in February. There are concerns this year’s inflation may exceed 3%,» says Luminor Bank’s expert Pēteris Strautiņš.

According to him, one interesting signal is service price rise, which has sped up from 2.6% to 3.6% in the last two months. But this is nothing to worry about, however, as inflation was 4% in April and June last year. It remained 2.7% on average in the last three years.

«Consumer price rise in neighbouring countries was slower: in Lithuania inflation declined from 4% to 3.5% and in Estonia inflation declined from 3.5% to 3.1% in February. In this regard, Latvia remains a cradle of peace among Baltic States. This is proven by other indicators often considered accurate measurements of forces that drive price rise. Base inflation, which is calculated by excluding its more fluctuating components (energy and unprocessed food), was 1.8% in Latvia, 3% in Estonia and 3.5% in Lithuania,» says the economist.

He continues: «Eurostat also offers inflation estimate that is ‘clean’ of tax change influence. This means data only reflects market processes. Based on this data, Latvia’s inflation growth was 1.6% in January 2018, which is slightly over half as high as the level recorded in August 2017 (3%). In Lithuania the index was 2.8%, and in Estonia it was 2.6%.»

Strautiņš says that claims regarding unemployment in Latvia dropping below the so-called natural level are beginning to sound less and less plausible. Base inflation in Latvia is currently the lowest it has been since November 2016. Price index shows that the economy still has unused potential, says the economist.

«At the same time, there are signs of a possible rapid price growth in future years. The housing market will likely become more active in the future. After a lasting period of calm, price rise has become more rapid in the standard apartment marker, which is an important reference point for other segments,» says the economist.

According to Arco Real Estate data, average apartment prices of standard apartments grew 21% in Jelgava. Price rise in Bolderaja and other cities was 15% or higher. Price rise in Riga was 13% for new projects and 12% for standard apartments (26% in the historic centre).


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