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of the main factors that are influence the inflation rate, however the changes in currency rate is not the major issue that is the key. If we analyze the products that have their price increased the most then we can point the most important zones:

Food industry

Medicine

Household goods

Personal services

Cafeteria and restraint services

Even thought the price of the euro is currently high, and this is one of factor that influences the inflation, nevertheless currency rate is not the core element that is increasing the inflation. Higher food products prices were determined in Latvia, due to its low price level before it’s joining to the EU, even comparing with the other Baltic States, and therefore with this we can link the price increase.

There is one very important factor that has decreased the inflation rate in Latvia in the latest years. This is retail chain that is efficiently reducing the inflation rate both in Latvia, Lithuania, Slovakia and Hungary. They compete with each other very efficiently, and they have special role in these countries, and thanks to them the inflation rate is successfully reduced.

Fourth, is the wage/inflation increase spiral. We had to big demand for wage increasment, which overheated the economy, and due to this we had very high rate of inflation. And now when we are facing the recession period, enterpreneurs are unable to pay such high wages and sallaries therefore, we are facing the situation we have huge ammount of uneployed persons 16,1%, therefore our economy is suffering.

Recommendations

To stabilize the situation in the Latvian market, our government should support our local producers and especially exporters. The inflation rate is different in the neighbor country, Estonia; therefore we should implement the policy that is used in the Estonia to successfully overcome the inflation rate that is too high for us. Since we are unable to have European currency, we should untie it and stop investing money into holding the value of lat, and even perhaps devaluate.

We shouldn’t increase excise tax or VAT any more, in order not to increase the inflation any longer, as the increase in the VAT and excise tax, as we increase the taxation system, the producers and service providers are facing difficulties such as they have to invest into reprogramming the cash machines for the new tax system, and this creates the extra expenditures for the firms. And the suffering side is once again the consumer. Evidently the results of a such situation that was made by our government, resulted in price increase that was higher than 3%, however the VAT tax was increased only by 3 %. Also the government found that such tax rate increase was wrong solution for overcoming the crisis. The amount of the money flow decreased.

For the inflation to decrease we our country should support the local producers especially ones that are tending to export their production abroad, this will reduce the negative balance of payment that Latvia has at the current moment.

Also we should improve the situation in the retail market of Latvia, since the high competition in the sector is making the opportunity to decrease the prices for goods. Consequently

Tougher competitiveness policy should be introduced, to successfully redu