Latvia has firmly stuck in deflation zone. Although in June compared to May the consumer prices did not change, during the year (this June compared to June 2015) deflation was 0.5%.
Latvian economy is still reaping the benefits of collapse in oil prices, and along with it the results of reduction in the cost of gas, fuel oil and therewith associated tariffs for thermal energy.
Besides residents and businesses, the government also was not slow to take advantage of a sudden season of oil discounts. Having guessed the time when barrel dropped to the bottom, which in the current cycle was on the level of USD 30, the Cabinet has increased the excise tax on motor fuels. As a result, today when the oil is more than twice cheaper than two years ago the price tags on petrol and diesel fuel at filling stations in Latvia have returned to the days when oil cost more than 120 USD/bbl.
Following the excise duties on oil products, with some delay the additional taxes were imposed also on public utilities. Since 01 July, VAT is applied to them. It was decided to split savings from cheapened natural gas in monthly bills of Latvian tenants and houseowners between the budgets of ordinary Latvians and the state.
Meanwhile, oil has stabilized close to 50 USD/bbl and does promise new gifts of the destiny any longer. At the same time, increasing in recent years wages cause the growth in demand accompanied by the temptation to raise prices. This temptation is compensated by the uncertainty - what will happen with Latvia and with us?
Regular downward update of Latvian GDP forecasts, Brexit, mixed-up age on European markets, trade wars with Russia, which according to data of CEPII French research centre in the field of international economics each year cause damages to Latvian economy in the amount of EUR 319 million... All it motivates the common man and the businessman to save rather than spend which, in turn, contributes little to the rise in prices.
As a result of mixing all these factors, the prices still will move from decline to growth, but it will proceed slowly: inflation of 0.1-0.2% can be expected at year-end in Latvia.