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The Latvian Economy, No.2, 1 March 2011

17-03-2011 09:07

Can authorities hold back rising inflation in Latvia?

  • The hike in inflation in January 2011 was largely due to tax rises. There are perhaps more to come in July. Upward price pressures come from abroad, causing increases in such first-necessity items as food, housing, and transport (e.g., the planned rise in electricity tariffs in April). Price growth for these items is increasing social problems, as inflation hits poorer households harder.
  •  Among possibilities to hold back inflation and reduce its negative effects on the lower-income inhabitants are to improve competition in product markets and the labour market situation (e.g., supporting job creation), as well as tax policy.
  • In view of the planned euro introduction in 2014, the government now faces a tax policy trade-off between inflation and budget deficit reduction in moving to fulfil the Maastricht criteria.

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