A closer look at the inflation experience of the past three years

The European Central Bank’s target for inflation is 2%. Currently, May 2024, Eurozone inflation is 2.6% so a bit above target while inflation in Latvia for May 2024 had dropped to 0.1% when compared to May 2023.

But it has certainly been a bumpy ride since inflation took off and since the time it first broke the 2% barrier in Latvia before rising above 20% was May 2021, we might take stock of what has happened altogether to various prices in that three-year period, May 2021 – May 2024.

The Official Statistics Portal of Latvia provides data each month for the price developments of all goods and services, for goods and for services separately, for 12 main groups of goods and services (see Table 1) and for a long list of sub-groups (yes, you can have the price developments of pizza and quiche products, in case you are interested – just look for item 01.1.1.5), amounting to altogether 300 price developments each month.

For the 12 main groups total price changes between May 2021 and May 2024 are presented in Table 1.

Table 1: Cumulated price changes May 2021 – May 2024 for the main commodity groups of the Latvian Consumer Price Index

Commodity group	Price change May ‘21 – May ‘24
01 Food and non-alcoholic beverages	42.2%
02 Alcoholic beverages and tobacco	23.0%
03 Clothing and footwear	12.5%
04 Housing, water, electricity, gas and other fuels	46.0%
05 Furnishings, household equipment	24.8%
06 Health care	24.6%
07 Goods and services related to transport	24.8%
08 Communication	10.9%
09 Recreation and culture	18.6%
10 Education	19.9%
11 Restaurant and hotel services	36.4%
12 Miscellaneous	33.7%

Source: Official Statistics Portal of Latvia and own calculations

Nothing really surprising, just depressing: all major groups have seen price increase with the biggest increases for group 04 – energy, and group 01 – food, which I think we are all too well aware of.

What about individual products? I have put together a Top-12 for those with the biggest price increases, see Table 2.

Table 2: Cumulated price changes May 2021 – May 2024 for individual commodities of the Latvian Consumer Price Index

Commodity group	Price change May ‘21 – May ‘24
1: 04.5.2.1 Natural gas	127.3%
2: 01.1.7.4 Potatoes	101.5%
3: 01.1.5.3 Olive oil	97.1%
4: 01.1.8.1 Sugar	78.7%
5: 11.2.0.1 Hotels, motels, inns	68.3%
6: 04.5.5 Heat energy	65.2%
7: 01.1.9.1 Sauces and condiments	63.3%
8: 04.4.2 Refuse collection	63.0%
9: 04.5.4.9 Other solid fuels	58.6%
10: 01.1.1.1 Rice	57.3%
11: 01.1.1.2 Flour	56.4%
12: 01.1.1.3 Bread	55.2%

Source: Official Statistics Portal of Latvia and own calculations

Some of these (gas, heat, fuels) are directly related to Russia’s war in Ukraine. Potatoes and olive oil can be explained by negative supply shocks, i.e. factors (= climate) causing a decline in production. I have bigger problems explaining sugar, rice, flour and bread. All four saw international prices rise following Russia’s invasion of Ukraine, but these prices have since fallen back. Do they remain high here just because of higher prices of transportation of such goods and/or higher labour costs and/or supply chain issues? Or have supermarkets somehow “forgotten” to scale prices back again? Worth looking into but it is beyond the scope of this little article.

Hotels, motels and inns are up, mostly because they dropped so much during corona. As for garbage collection, I have no idea.

But not strange that the inflation experience has caused such consternation across the population – most of the top-12 goods are basic necessities. Scaling back your consumption on sauces and condiments will not really save the day…

PS Hasn’t anything dropped in price during this period? As a matter of fact, yes, some three handfuls of products have seen their prices decline. Very nice with cheaper personal computers (-11.7%), cheaper books (-3.0%), cheaper cameras (-4.1%) – but it does not really compensate for the increases in energy and food prices.

Morten Hansen is Head of Economics Department at Stockholm School of Economics in Riga and former Vice-Chairman at the Fiscal Discipline Council of Latvia.