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Euro-bound Latvia returns to deflation, with strong growth

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(Globalpost/GlobalPost)

Latvia returned to deflation in November as consumer prices fell by 0.4 percent on a 12-month basis, official data showed on Monday, just weeks ahead of the Baltic state's eurozone entry.

The national statistics office also released data showing that Latvia remained on track to post the strongest growth in the European Union for a third year running.

The Baltic state of two million people will swap its lats currency for the euro on January 1, becoming the eurozone's 18th member.

Alongside this development, Latvia along with the other Baltic states of Estonia and Lithuania is considered by economists to form part of what they term emerging Europe, a region which they say is now well placed for firm recovery provided that the eurozone continues to climb away from recent recession.

In Latvia, shops and services are already displaying prices in both currencies, while post offices will release the first euro-coin starter packs to the public on Tuesday.

The 0.4-percent deflation rate in November on an annual basis followed a zero rate in October.

On a monthly basis, prices fell even more sharply by 0.5 percent in November, down from 0.3 percent inflation in October.

"The inflation data for November are a surprise," Nordea bank chief economist Andris Strazds told AFP.

He explained that in contrast to previous months, deflation was recorded across the board and not just in the price of a particular product group.

"I have only one feasible explanation (for this) -- domestic demand growth in November started to falter and to keep the volumes up, businesses resorted to lowering prices," Strazds told AFP.

Statistics Latvia also revised upward its annual GDP figure for the third quarter to a seasonally unadjusted 4.5 percent, from an initial estimate of 4.2.

"Latvia still takes the leading position in terms of GDP growth," in the EU, it said.

Gross domestic product rose by a seasonally adjusted 1.3 percent compared to the second quarter figure, revised up from 1.2.

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http://www.globalpost.com/dispatch/news/afp/131209/euro-bound-latvia-returns-deflation-strong-growth