Bank of Latvia increases inflation outlook for 2017 to 2.7%
The Bank of Latvia has increased its inflation outlook for 2017 from 1.6% to 2.7%, as reported by the bank’s press-service.
On Thursday, 23 March, the Council of the Bank of Latvia decided to increase the inflation outlook for 2017 after reviewing the macroeconomic analysis and specialists’ report on the situation in Latvia’s national economy and the world.
«Food product price tendencies around the world and oil price rise in comparison with the same period of 2016 show that inflation will likely rise more rapidly than expected this year,» the central bank reports.
The Bank of Latvia adds that in January 2016 oil prices around the world had declined to the lowest level in the past twelve years – to USD 30 per barrel. Since then, however, an oil price increase trend has been noticed, with oil prices reaching USD 55 per barrel in the middle of the year. This is already reflected in fuel prices. It will continue increasing prices of other goods and services.
In parallel to the world price rise on food products also increased food product retail prices in Latvia. This increase was affected by multiple factors, including the rising trend for prices on milk, meat and sugar, as well as the more recent trends: price rise on animal feed and increased demand for fresh milk.
At the same time, the Bank of Latvia mentions that the influence of demand on inflation will likely remain unconfirmed. «The national economy still remains in a state of macroeconomic balance, with unemployment remaining close to its natural level for four years. Prices that are not regulated administratively and which reflect the influence of internal demand grow at a moderate pace. It is reflected in the base inflation index, which will remain only slightly above 1% this year,» Bank of Latvia notes.
The bank also mentions that market liberalization may result in a more rapid climb for natural gas prices. «The topical inflation outlook includes the assessment of certain natural gas tariff components. Uncertainty remains high, however,» the bank’s representatives add.