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2009, annual inflation continued to cave in and stood at 9.8%; month-on-month, purchaser prices increased by 2.2%. In January, consumer prices increased mainly on account of the raised VAT rate. Given a rapidly dilapidated demand, the changes in the VAT rate were reflected in the changes of the end user prices only partly. Inflation has been climbing also on account of a larger weight of the housing expenditure in the consumer basket.  At the end of 2009, inflation in Latvia could possibly drop to the low rates of the West European countries; as a result from the price rises aspect, the changeover to the euro might take place as early as in 2011. 

However, the actual date of the changeover to the euro will largely depend on the ability of the government to balance the government in a way that it becomes compliant with the Maastricht fiscal criterion. With the purchasing power failing and competition toughening, business would rather compensate for the changes in the VAT from corporate profit than increase prices. For example, the prices of footwear and clothing have declined markedly since December (by 7.0% and 5.6% respectively) despite the increase of the VAT rate. Nevertheless, the housing-related payments went up drastically as a result of the rise in the tax rates – water supply by 16.3%, garbage collection by 16.6% and sewage services by 16.8%. Food prices increased as a result of the changes in the VAT rates, for bread (3.5%), fish (3.6%), as well as meat and meat products (2.1%) in particular. In January, also the excise tax rates on tobacco witnessed an increase, with tobacco prices growing by 7.0%; however, this price rise might not yet reflect the changes in all excise taxes. (Krista Kalnberzina

Senior Economist, Monetary Policy Department, Bank of Latvia)

In March, inflation rate was considerably affected by a slowdown in economic activity, including a rapidly shrinking demand. Though the average price level increased by 0.2% over February, partly on account of seasonal factors, the inflation rise for the month was lower than the 1.5% recorded in March of the previous year. Thus, annual inflation continued on its downward path to stand at 8.2%.

In March, month-on-month increase was largely determined by the increase of patient fees and the end of the traditional discount season. This year, considering the steep decline of demand and tightening competition, the seasonal effect on price increase has been less pronounced, since sales discounts continue to be broad-based, while the new collections have been priced more moderately.

A month-on-month deflation is anticipated as of April: a decrease in household income will further push down the demand, resulting in a growing competition among retailers. A decline in administered energy prices is anticipated already as of May, expected to bring down costs and allow companies to reduce their prices even more.

Conclusions

Inflation in Latvia has been caused by many factors altogether, not one specific factor. Internal demand, which is influenced by real wage, loan factor, has increased the most significantly in Latvia, therefore creating additional increase in the inflation rate. From the supply side, both salaries, and labor costs grew faster than in other countries. In the in the intervening time the Latvian lat that is tied to euro, is one本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。