The economic indicator – the European Union’s second highest inflation rate behind Bulgaria – rose from 11.4% in September for a fifth consecutive gain. The last time the inflation rate was this high was in December 1996 as Latvia tried to recover from the economic crisis of the early 1990s. The prices of gas, water, and food had the greatest impact on inflation in October, the office of statistics said in its press release. “Wages are driving prices, prices are driving wages,” said Morten Hansen, head of the economics department, at the Stockholm School of Economics in Riga before the report.
Last year Latvia posted economic growth of 11.9%, one of the highest figures ever seen in the EU. However, inflation has been above 6% ever since Latvia joined the EU in 2004, leading to warnings of possible overheating. Later on Thursday, the parliament is scheduled to debate the 2008 annual budget, which foresees a surplus of 1% of the GDP in an effort to tame the rising inflation.
The centre-right government led by Prime Minister Aigars Kalvitis, who said he would step down on December 5, has been under pressure domestically and internationally to heed the signs of an overheated economy. Domestically, the government faced political pressure from unhappy Latvians who demanded the government’s resignation as well as from unions who demanded increased wages for some public sector workers beyond the level of inflation. Unhappy with the budget, the labor unions have launched a signature drive to dissolve the parliament. And the economic growth pushed consumer prices beyond targets required to adopt a common European currency, forcing the government to abandon its 2008 target date to join the euro.
The strict EU criteria for adopting the euro stipulates that countries must have an average annual inflation rate no higher than the average of the three lowest rates in the EU, plus 1.5%. (m&c.com, bg)
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