According to data from the Central Statistical Bureau, the consumer price level in December 2023 decreased by 0.8% compared to November 2023, which was the sharpest price drop in the month of December since 1991, or since the commencement of data publication. The average price level for goods decreased by 1.2%, while for services it increased by 0.4%. The most significant impact on price changes came from the fall in prices for fuel, electricity, clothing, and footwear, as well as price increases for passenger air travel and alcoholic beverages.
In 2023 as a whole, consumer prices stabilised, decreasing each month compared to the corresponding month in the previous year – from 21.5% at the start of the year to 0.6% in December. This continued to be influenced by world prices and the unstable geopolitical situation. Taking into account the base effect of inflation dynamics, average annual inflation remained high in 2023, at 8.9%.
The largest upward impact on the average annual consumer price level was the increase in prices for services. Service prices increased by 5.3% overall, which raised the total consumer price level by 1.3 percentage points. The most significant upward impact came from outpatient services, primarily due to the rising costs of specialist doctor and dental services; prices also increased significantly for catering services, passenger air and road transport, recreation and cultural services (including television subscription fees, leisure and sporting events, and visits to museums, cinemas, theatres, and concerts), housing rent, waste collection and other housing-related services, as well as the maintenance and repair of personal vehicles. Conversely, prices for sewage services decreased significantly.
At the beginning of 2023, food prices continued to rise sharply. Since April, the rapid growth in food prices in Latvia had eased – April, October, and November saw price increases characteristic of those months, but in the remaining months, food prices either decreased or remained at the previous month's level. Overall, prices for food and non-alcoholic beverages increased by 2.7% over the year, which raised the total consumer price level by 0.7 percentage points. Prices rose in all major food groups except for dairy products, oils, and other fats. The most significant impact on the increase in the average price level over the year came from vegetables, non-alcoholic beverages, bread, and cereals.
Local changes in food prices are largely determined by price fluctuations worldwide. Since the middle of 2020, food prices globally have risen rapidly, driven by a sharp increase in import demand, delays in processing and transport due to labour shortages caused by Covid-19, and rising crude oil prices.
The situation was exacerbated by Russia's invasion of Ukraine in February 2022, which raised concerns about future global food supplies, as both Ukraine and Russia are major suppliers of agricultural products. However, since April 2022, following an all-time high in March 2022, global food prices have been falling. In December 2023, compared to December 2022, global food prices fell significantly – by 10.1%. The sharpest price drops were in cereals, dairy products, and vegetable oils, while meat prices saw a moderate decrease; conversely, sugar prices rose sharply. The price decline was driven by increased production in major producing countries, abundant export supplies, and low demand due to inflation and a slowdown in economic activity. In contrast, the rise in sugar prices was influenced by concerns about the potential impact of the El Niño weather phenomenon on 2023–2024 production prospects.
It should be noted that in December 2023, compared to December 2019, global food prices had risen by 17.3%, while in Latvia during the same period, they rose by 43.6%.
The average price level for alcoholic beverages and tobacco products rose by 8.3% over the year, which increased the total price level by 0.6 percentage points. Prices for alcoholic beverages rose by 9.3%, while prices for tobacco products increased by an average of 6.4%. The most significant impact came from the price increase for spirits and cigarettes.
A notable price increase was also seen for clothing and footwear, personal hygiene goods and beauty products, as well as household cleaning and maintenance products, which together increased the overall price level by 0.4 percentage points.
The largest downward impact in 2023 was the drop in prices for housing-related energy resources – electricity, gas, solid fuel, and heat energy – which lowered the total price level over the year by 2.3 percentage points. A major role was played by government support measures introduced to compensate for the rapid rise in energy prices from 1 October 2022 to 30 April 2023, partially subsidising household payments for electricity, natural gas, and heat energy, as well as state support to partially compensate for the increased costs of distribution system services from 1 September to 31 December, thereby curbing the previously rapid price growth in the housing energy group. The most significant impact came from the almost constant decrease in heat energy prices in all months of the year, except for May, when government support for reducing energy prices ended.
Prices for heat energy overall decreased by 19.7% over the year, which is explained by the drop in natural gas and woodchip prices. Electricity prices decreased by 12.2%. The sharper decline in this indicator was significantly hampered by both the end of state support, which partially compensated households for the first 100 kWh until 30 April, and the increase in distribution system service costs from 1 July, which was partially compensated by state support from 1 September.
It should be noted that the average electricity price for the Baltic region on the Nord Pool system in 2023, compared to the previous year, had fallen by almost 60%, mainly driven by higher output from renewable energy sources – solar, wind, and hydroelectric power plants – as well as the downturn in natural gas prices in Europe. With the reduction in prices for wood products used for heating in the market, prices fell for solid fuel, which decreased by 24.7% over the year. A similar downward effect was also exerted by the drop in natural gas prices.
Natural gas prices decreased by 27.1%, influenced by a sharp drop in natural gas prices on the stock exchange, which in May 2023 fell to the lowest level since April 2021. The opening of the natural gas market to households from 1 May also had a significant impact.
Fuel prices in Latvia decreased by 5.6% over the year, thereby lowering the overall consumer price level by 0.4 percentage points. A sharper price drop between March and June and in the final months of the year compensated for the fuel price increases between July and September. Prices decreased more sharply for diesel fuel, while the price drop for petrol was more moderate.
It should be noted that fuel price dynamics are influenced by fluctuations in world oil prices. Global oil prices saw a decline in 2023, which was the first annual price decrease since 2020. At the end of December 2023, the price of Brent crude was 77 US dollars per barrel, which was 10% lower than at the end of December 2022. Oil prices experienced temporary increases over the year, primarily caused by OPEC+ production cuts, the Israel-Hamas war, and US Federal Reserve forecasts regarding interest rate cuts. However, signs of growth in crude oil production, especially from non-OPEC countries, combined with uncertain demand prospects for the year as a whole, resulted in a decrease in oil prices. In December, oil markets also contended with Angola's unexpected withdrawal from OPEC, attacks by Yemen's Houthi rebels on ships disrupting trade in the Red Sea, and concerns about a prolonged conflict in Gaza.
Looking ahead, the main impact on price changes will continue to be linked to fluctuations in global energy and food prices, as well as being determined by global developments. At the same time, inflation in Latvia will be affected by various supply-side factors related to tax and tariff increases, as well as the demand side, which will be boosted by wage growth. Overall, average annual inflation in 2024 is expected to be within the 2% range.