Economist warns of high risks for rising food and fuel prices
SEB bank economist Dainis Gašpuitis says that after summer's easing inflation, rising energy costs could soon push up food and fuel prices in Latvia. Annual inflation in August climbed to 3.2%.
Consumer prices in Latvia rose 0.3% in August compared to July, pushing annual inflation to 3.2%. The main driver was higher energy costs, which affected transport and housing expenses along with several other categories of goods and services, while food and clothing prices actually fell during the month.
SEB bank economist Dainis Gašpuitis notes that after inflation eased over the summer, price growth risks are now returning, driven mainly by rising energy prices. He adds that although wage growth has slowed this year, it will still keep pushing up prices in the services sector.
Tension in oil and gas markets
According to the economist, the oil market situation has been complicated by US strikes on Iranian oil tankers and an attack on Saudi Aramco infrastructure, raising concerns about supply security. Global oil inventories keep shrinking, while diesel refining prices have already hit record highs, meaning that as winter demand for distillates rises, the risk of further increases in oil product prices is considered very high.
The gas market is also under strain — the TTF price has reached its highest level since early 2023, while European gas storage is only about 67% full, notably below the historical average for this time of year. This stems from geopolitical tension in the Middle East and related disruptions to liquefied natural gas supplies, including uncertainty over the resumption of Qatari exports. Still, the economist stresses that the price rise mainly reflects winter supply risk rather than a long-term structural gas shortage, since gas already trades lower for periods after March 2027.
Food price pressure building gradually
The FAO Food Price Index rose 1.9% in August, reaching its highest level since November 2022, driven by heat, drought, geopolitical conflicts and higher energy costs. The economist explains that this pressure may filter through to consumer prices gradually, with the bigger food inflation risk tied to next year — if high energy prices persist, food could once again become a major driver of inflation.
Despite these risks, Gašpuitis forecasts that this year's inflation in Latvia will come in lower than initially expected, at 3.3%, while next year it will remain elevated, above 3%.
