Regulator raises inflation forecast for Latvia
The Bank of Latvia has revised its inflation forecast for the current year. Since the last analysis, the expectations have been raised from 6.1% to 9.5%. The regulator also notes that the inflation rate in the next period may reach 3.7%, although before the experts called the rate 2.9%.
The reason for the upward revision of the forecast was a rise in energy prices and a rise in food prices on the world market. In spite of the growth of inflation in the current and future years, the forecast for 2024 did not change, i.e., within 2.1%. It will be possible to maintain such a level due to the decrease in the cost of energy resources, while the prices will still remain higher than they were before the current events in the world.
The tense situation is affecting the economies of almost all countries, and Latvia is no exception. Here, prices are rising and the purchasing power of the population is decreasing. The negative impact of high inflation is observed in almost all categories of goods, including food products. According to representatives of the Central Bank, Latvians can now buy fewer goods for the same amount of money than before February this year. In order to mitigate the effects of rising inflation, the government has organized help for low-income categories of citizens. Such people are provided with targeted support, which can be applied by the relevant authorities.
The Bank of Latvia estimates that the rate of core inflation, which does not include the cost of food and energy resources, will be 4.1% in 2022. Compared to the previous forecast, this figure has increased by 1%. Core inflation is expected to reach 3.5% in 2023 and 3.7% in 2024.
As for GDP, the forecast for the current year is an increase of 1.8%. This estimate is low compared to the previous one when GDP growth was promised at 4.2%. It should reach 3.2% in 2023 and 4.1% in 2024.
According to representatives of the regulator, the published forecast is a reaction to macroeconomic processes in the world. However, like the situation in the world as a whole, there is uncertainty in the local economy, and everything can change in a few days. If geopolitical tensions do not subside, we should expect more serious consequences for Latvia and the global economy. Experts do not exclude the possibility of a shortage of raw materials, which will affect production and investments. Despite the possibility of a negative scenario, wages in the country should grow by 9.7% this year.