OREANDA-NEWS. March 10, 2009. The inflation in February was a little bit higher than forecasted and reached 9.6%, in comparison with the previous February. No doubt that the main factor causing the price rise in January and February was tax increase. The excise tax rate increase in February caused prise rise to fuel, alcohol and soft drinks. The substantial decline of prices was observed to some groups of products, for instance, to milk products, reported the press-centre of Latvijas Krajbanka.

It is more likely that after two months of price rise, which was mainly stipulated by changes in tax policy, we will observe deflation in Latvian, which is the decrease in the general price level towards the previous month. Unfortunately, it is more likely that this year the deflation will be characteristic to Latvia. Why unfortunately, if the price decrease basically is a nice process for every consumer? We have to consider the fact, that this process will be followed by an economic decline, growing unemployment, decline of purchasing ability and welfare, which means that the deflation is not a desirable occurrence.

For instance, if the decline of GDP will substantially exceed the level of 10%, we can not eliminate a possibility that by the end of this year the average prices could be even lower than in 2008. Of course, there are several unknown factors, which could delay such a cardinal decrease of inflation – from almost 10% in the beginning of the year up to zero or negative index by the end of the year. For instance, very often we hear about another tax increase with an aim to increase budget income, which could cause another minor price rise wave to separate goods and services.