Macroeconomic Forecast Latvia

The annual rate of consumer price inflation rose to 9.5% y-o-y in July. With the exception of communications, price growth was strong across the board, particularly with regards to foods (up 12% y-o-y), alcohol beer and tobacco (14% y-o-y, driven by an increase in tobacco excise tax) and housing, water, electricity and other fuels (15% y-o-y). Officials now expect consumer price inflation to average about 8% this year but to decline by 1.5%-2% per annum from 2008 onwards in response to demand-restraining policies. The slowdown may not proceed as the government envisages, however, and with real wages increasing by 23%

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