OREANDA-NEWS. On July 24, 2008 This morning the information about the regular increase of gas tariffs for 30-50% in autumn was published, reported the press-centre of Latvijas Krajbanka.

As a comment of this decision the Public Utilities Commission  (PUC)representatives point out positive moments: firstly, the tariffs will come into effect not now, but from the 1st October, and, secondly, the European price level to gas will be reached at last, meaning that henceforth the gas tariffs will be altered only according to the masout and gas listings on the world's markets.

Nevertheless this relief will not save the Latvian economy and residents from another inflation shock. The increase of gas tariffs will be followed by the increase of other administratively regulated prices, which will reduce the purchasing capacity of households and will increase the total level of prices in the country.

It is doubtless that the direct effect of tariffs will not be great and is more likely to comprise less than one percentage point. Still, we almost cannot forecast the indirect impact. We can expect that this time the effect will be less and "more fair" than it was the last time. It is not a secret that previously several companies used the price rise to energy resources without a reason as an explanation for the rapid price rise to their products and services. But now the economic situation in the country has changed. T

he domestic demand has diminished rapidly, which means that it is not profitable for the businessmen anymore to raise the price, otherwise the number of buyers will diminish sharply. Theoretically now the businessmen have two possibilities - to include the expense increase related to the tariff rise into the prices of goods and services and to loose the clients, or to incur loss. Although those are two extremities, nevertheless we can expect the negative tendencies in the business environment - reduction of personnel or even termination of activity - to continue.

Unfortunately the tariff increase limits the possibilities to have a serious decrease of inflation this year. Yet more - the hope that the highest point of inflation was reached in May has almost vanished. As it often happens in Latvia, it is more likely that the pessimistic prognosis will come true: the inflation reduction in Latvia could be postponed to the next year.