Compared to previous month -0.5 %
YoY comparison +0.5 %
July is typically characterized by deflation climate, and considering the implications, this year was not an exception. In accordance with our estimates, average consumer prices decreased by 0.5 % in July, indicating a negative trend for the second month in a row. Thus, annual inflation may have slowed down to 0.5 % compared to the 0.6 % increase in June.
Reduced energy tariffs also contributed to the impact created by seasonal factors that decreased inflation in July. Last month, natural gas tariffs for households and Rīgas Siltumenerģija's tariffs that are pegged to average oil prices for the previous nine months decreased by more than 8 % and 5 % accordingly. As a result, these two positions generally cut down the monthly inflation rate by 0.3 percentage points in July. Seasonal decrease in footwear and clothing prices at stores has pulled the inflation level downwards.
Concerns regarding surplus oil supply caused a new wave of global oil price increase. Since late June, prices of energy resources have decreased by 20 % in euros, as investors also included the impact of Iran's oil entering the market. Latvia witnessed a slight decrease in fuel prices as early as in July, however the recent developments in the oil market will mostly start manifesting themselves in fuel prices in August.
If the recent oil price drop turns out to be permanent, this may introduce certain adjustments in our inflation forecasts. Currently, we are keeping our annual inflation forecast unchanged anticipating that the inflation will approach the 2.0 % range at the turn of the year.
Sincerely,
Simona Striževska
Market Analysis Department Economist
CBL Asset Management (former Citadele Asset Management)