Riga - Deflationary pressure in Latvia gathered pace in
June, as prices fell markedly in the small Baltic country
experiencing the European Union's most extreme economic reversal.
Compared to May, the consumer price index (CPI) fell by 0.5 per
cent, according to figures released Wednesday by the Latvian national
statistics office.
Annual inflation fell from 4.7 per cent to 3.4 per cent.
The figures represent a remarkable turnaround in Latvia's
inflationary fortunes as the previously overheated economy freezes
over.
Inflation peaked at 17.7 per cent as recently as May 2008.
The Latvian finance ministry warned that deflationary pressure was
likely to continue for some time.
'The Finance Ministry predicts further price falls into the autumn
months. ... Increased competition and the sharp correction of the
labor market will make an additional contribution to the reduction of
price levels,' a ministry statement said.
The Latvian economy contracted by 18 per cent during the first
quarter of 2009 with a similar figure predicted for the year as a
whole.
The outlook for the small Baltic state is tough with unemployment
rising past 14 per cent, tax revenues falling by nearly a third and
defaults increasing among people who took out loans during a
decade-long credit boom.
'Even after a very significant tightening of fiscal policy in
Latvia, the outlook for public finances is very bleak. New data shows
that government revenues in June were 15.3 per cent lower than
originally planned,' said a commentary from Danske Bank.
However, the Latvian government seems to have satisfied
international lenders that suitable structural reforms have been
carried out.
The European Commission has promised to pay a 1.2-billion euro
tranche of a 7.5-billion-euro (10-billion-dollar) loan by the end of
July with the International Monetary Fund (IMF) expected to follow
suit with its own contribution of 200 million euros.
USA
Your Talkback on this Story