The Bank of Latvia’s inflation forecast for 2023 has been revised to 9 percent, up from 8.5 percent in the June forecast, as the central bank’s representatives told reporters on Friday.
Meanwhile, assumptions about lower food and natural gas prices allow for downward revisions of inflation forecasts for the next years: to 2.3 percent for 2024 (the June forecast – 2.4 percent), and to 2.5 percent for 2025 (the June forecast – 3 percent).
According to the Bank of Latvia, inflation in Latvia is falling further, with the previously observed supply-side constraints waning.
Global resource prices and commodity import prices have fallen – energy prices are lower than a year ago, global food prices have drifted downwards over the past months, the Bank of Latvia said. Producer prices in manufacturing are declining, and they have already fallen below the level reached last year, largely reflecting the energy price adjustment, while the expected heating prices in most of Latvia are lower than during the previous heating season. The price expectations have decreased significantly among consumers and firms, however, there are risks of price rises and, for example, global markets have seen a rebound in oil prices recently. The impact of increasing wages on prices is also intensifying.
The most recent inflation data point to a stronger-than-projected rise in prices of energy, services and industrial goods, therefore the inflation forecast for 2023 has been revised up to 9 percent.
At the same time, the core inflation is expected to remain elevated in 2023 and beyond due to the strong wage growth affecting both demand and costs in the price-setting process. The core inflation will decrease gradually from 8.2 percent in 2023 to 4.2 percent in 2025, the Bank of Latvia said.
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