- The Latvian statistical office has released consumer price inflation figures for May. As expected, inflation decelerated to 4.7% y/y (-0.5% m/m) from 6.2% y/y (-0.3% m/m) in April.
- As in other Baltic states, the rise in global oil prices offset the deflationary pressure somewhat. However, taking into account a freefall in growth, we expect more deflationary pressure in this and the coming year.
Details
The Latvian statistical office today released consumer prices inflation. CPI decelerated to 4.7% y/y from 6.2% y/y in April. The outcome was a bit higher than the consensus forecast and our expectation.
The price reductions of housing, water, electricity, gas (by 3% m/m), food (0.3% m/m) and clothing (0.9 % m/m) had a major impact on the consumer price decline in May. More costly fuel pushed up the price of transport (by 0.8% y/y), but without any strong second-round effects.
Assessment & Outlook
The Latvian economy is sliding into a deep recession and CPI inflation is set to decline further. We expect to see annual deflation after the summer months this year. Taking into account an extremely tough budget situation, we still believe that there is some upside risk to our CPI forecast related to a rise in indirect taxes and rising oil prices. However, it is obvious that the latter impact would be relatively short lived. We maintain our average inflation forecast for this year of around 3.6% and -0.2% in 2010.
