Media, Arte, Cultura

Latvia: plan to combat inflation backed by the cabinet

A rise in several administratively regulated prices will be unavoidable today and for some years ahead

di Dainis Dambenieks

On 6th March, 2007 the Cabinet endorsed a plan of measures aimed at curbing inflation. The plan provides for a range of steps to be taken in many areas of the national economy. To enable the key measures to be carried out immediately, also the necessary amendments to laws and the Cabinet Regulations have been endorsed. The main measures to cut down inflation are related to budgetary and taxation policies, lending and other fields, which can lead to improvements in the situation on the real estate market, labour market and boost productivity, as well as the competition policies. A rise in several administratively regulated prices will be unavoidable today and for some years ahead, and this will primarily be related to energy import prices, as well as the alignment of excise duty rates (cigarettes, in particular) in line with the EU requirements. Also, in market economy conditions, the government does not have any administrative tools at its disposal to directly reduce prices of selected commodities or services. This means that the only available and effective way to fight inflation is a responsible fiscal policy and action focused on the problematic sectors (such as real estate market). All measures can be viewed in two distinct groups: fiscal and taxation proposals, and proposals to restrict the growth of lending, provide for short-term and medium-term policy implementation, while the set of measures targeted at labour market, productivity, energy and competition is planned to bear fruits in a medium to long term. The level of inflation in Latvia is a result of many, often unrelated, factors, including changes of structural nature in connection with the EU membership, an overall rise in energy prices, and changes in administratively regulated prices, etc. The growth in demand has also had a considerable impact on the general level of inflation. Also inflation expectations, which have presently stopped at the current level of inflation, are an essential factor. More info at www.fm.gov.lv


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