Inflation in Latvia will soar after euro introduction!

For the first time cannot follow prof. Hansen arguments.

Yes, Italians, used to tip for coffee 1000 liras and started tip 1 euro, felt that coffee became more expensive. However, experience of Cypriots would be more relevant, as their currency was even heavier than lat.

Yet, why any of that would create inflation?

Thanks for this valuable piece of information, and may I dare to call it – insider? Becauce the prevailing prejudice is that any whisper of positive change in economy should it be salary rise, pension increase, or influx of capital will result in two digit inflation. And now along with your inflation prediction comes Euro with its unsurpased benefits to Latvia – the country where the best of crony capitalism is the answer to the theory that „Freedom in a common brings ruin to all”. Apparently the heartly handshakes and ultimate hugs of world leaders granted to Latvia statesmen colour thorough appreciation of what is being done in Latvia’s alpha test to switch to market economy, outfox the troubles, and join euro comunity.

Turēt mākslīgi zemu inflāciju dēļ iestāsanās eirozonā kritēriju izpildes, un pēc tam teikt, ka gaidāmais inflācijas lēciens nav dēļ iestāšanās eirozonā ir, maigi sakot, nekorekti. Kas vistrakāk tracina cilvjus un grauj ekonomiku? Tieši stabilitātes trūkums. Mākslīgi bremzējot vienus faktorus, rodas izkropļojums citos. Raustot sistēmu, procesu stabilitāte pasliktinās. Protams, tam reizēm var būt arī negaidīti pozitīvi rezultāti, bet pārsvarā tomēr pieaug visdažādākie riski.
Diemžēl šī pāreja no latiem uz eiro nav dabiski plūdens process, tādēl ekonomistiem tomēr vajadzētu vairāk skaidrot iespējamos riskus un ieteikt metodes, kā tos novērst, nevis tiem meklēt attaisnojumus ārpus procesa, kas izskatās vairāk kā pakaļas piesegšana par saviem publiski izteiktajiem kļūdainajiem pieņēmumiem, procesa negatīva rezultāta gadījumā.

I think it is not the most successful choice of timing for analysis. Since 2001 was the period of ‘IT bubble’ that reflected also in Europe, 2002 was a year of decreasing economic activity. So, the euro adoption could have much weaker influence on inflation than the general economic climate in the world.
In addition to higher nominal prices, inflation should stay low, because:
1) EU countries still struggle and no good recovery expected in 2013; low growth -> low inflation;
2) Latvia has high cyclical unemployment & mostly in low paid sector; low (in value terms) wage growth -> low inflation
3) Low Latvian government spending
Basically, there are no reasonable arguments, why inflation should be larger than the basic rate + euro adoption costs. Convergence to the eurozone welfare level cannot take place starting from 2014, because we have imbalanced macro situation as compare to other eurozone countries.

Ну что, Мортен! Будем продолжать со своимы фашистскимы выходками? Хотим правды, но по нашему, на всемогучем, а не по собачи или фашистски!

There is one factor that will be playing on the rise of inflation – rather sharp rise of the average salary level, which will take place next year. This is not a big secret that the government has been artificially hindering the rise of the salaries in the public sector since 2009 and especially in the last two years. The reason is, of course, need to comply with the Maastricht criteria. But this cramped spring will inevitably go off as early as next year, and inflation, understandably, will follow.