The prices of the Latvian manufacturers of industrial products in September 2016 as compared to September 2015 declined by an average of 1.6%. At the same time the prices of products sold in the local market fell down over the year by 2.2%, of export – by 1%.
In itself the annual price-cutting is easily explained by low oil prices, with which OPEC and other oil-producing countries were pampering factory guys during recent two years. But the epoch of a cheapening barrel seems to dry out, the oil prices update annual maximums, by increasing the prime cost of industrial products. Consequently, in September 2016 as compared to August prices of the Latvian manufacturers of industrial products hiked by 0.3%.
Apart from oil the prices are pressed up by milk. Whereas one of the leading Latvian industries is food industry, the situation at liquor producers and dairy plants has a major impact on the general statistics. At least, dairy processing industry did all it could to contribute to September industrial inflation.
After a long brake milk started rising in price prompting dairy products as well. So, the lowest farm-gate-price of milk was recorded in July of this year — 0.177 euro per kilogram, but thereafter recovery began — in August the farmers were paid on average 0.186 euro, but in September – already 0.201 euro per kg of milk. This trend continued in October too.
Basically the milk price hiking lies in a substantial increase in demand for the product in China, where the reserves of dried milk, which are set up for two years in advance, have depleted. Moreover, Russia, which imposed an official embargo on dairy supplies from EU countries, including Latvia, is increasingly procures in the global dairy markets. As a result the European prices are pressed up. At the regional level the demand and, accordingly, milk prices were lifted by new dairy plants that began operating in Lithuania and Poland.
Apart from the rising in price oil and milk increasing the prime cost of products of the Latvian plants and factories is impacted by the rise in labour cost. The shortage of qualified personnel entailed by the continuing emigration of working population of the Republic of Latvia, as well as the total rise in average incomes of the remaining workers (depending on industry by 5-10% during the past year) forces the manufacturers to build up the payroll fund of enterprises.
Thus, it is not surprising that the prices of products manufactured by marked up workers from marked up raw materials, have streamed up.