Wednesday July 8, 02:28 PM
UPDATE 1-Latvia June inflation eases, deflation down road
RIGA, July 8 (Reuters) - Latvia, gripped by the worst recession in the EU, saw consumer prices fall again on a monthly basis in June, data showed on Wednesday, and the Finance Ministry and central bank forecast deflation ahead.
Latvia's consumer price index fell 0.5 percent in June on a month-on-month basis, the same as in May, while the annual inflation rate eased to 3.4 percent from 4.7.
The small Baltic state has had to slash government spending to win more international aid and banks have cut credit, contributing to falling prices and weak demand. Its 2009 gross domestic product is expected to fall 18 percent.
'In 2009 the Finance Ministry forecasts a further fall in the level of consumer prices. The ministry also notes that deflation on a yearly basis is expected starting from the autumn,' the ministry said in a statement.
Northern neighbour Estonia is already seeing falls in prices measured on a year-on-year basis. In June, its consumer price index fell 0.9 percent year-on-year.
The central bank agreed that Latvian inflation would fall.
'It is expected that annual inflation will quickly continue to fall further, becoming negative in the autumn. It is expected that annual average inflation in 2009 will be between 3 and 3.5 percent,' the bank said in a statement.
The June annual average rate of inflation was 10.2 percent, down from 11.4 percent in May, the statistics office said.
The June data was in line with the median forecast in a Reuters survey. In June 2008, Latvia's 12-month inflation rate was 17.7 percent.
'The biggest impact on consumer price changes in June were price falls for heating, vegetables, shoes and clothing as well as price rises for fuel,' the statistics office said.
The price of food fell 0.6 percent both on the month and year-on-year in June.
Falling prices and incomes are part of Latvia's strategy to restore competitiveness without devaluing its lat currency, which is pegged to the euro.
(Reporting by Patrick Lannin, editing by Mike Peacock/Toby Chopra) Keywords: LATVIA INFLATION/
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