Finance Ministry: food prices to keep falling this year, rise expected next year

Latvia's Finance Ministry (FM) has issued an outlook on food price trends for the near future. It expects year-on-year food deflation to persist over the coming months, but believes higher food prices will likely be unavoidable in 2027. Contributing factors include rising oil and gas prices, military activity in the Black Sea disrupting grain exports from Ukraine and Russia, and unfavorable summer weather in Central and Southern Europe that could affect harvests.

First monthly price drop this year

According to the Central Statistical Bureau, consumer prices fell 0.7% in July compared to June — the first such monthly decline since the start of the year. Annual inflation was still positive but eased to 2.6%, down from 3.5% in previous months.

VAT cut on staple foods

The main driver behind the price drop was a VAT reduction from 21% to 12% on several staple products — bread, milk, poultry and eggs — effective from July 1. The ministry noted that the actual price decrease for most of these products exceeded the roughly 7.4% expected from the tax cut alone: poultry dropped 8%, eggs 7.6%, and milk 12.8%, while bread fell 5.8%. The ministry cautioned that other raw material market factors also played a role beyond the tax change.

Fuel prices and the labor market

Fuel prices also fell 3.5% in July compared to June, though the annual increase remained at 9.9%. The ministry expects fuel to become more expensive again in August amid tensions in the Persian Gulf. It also highlighted wage growth, projected to reach 5.5% this year, which continues to keep service prices elevated — services rose 5.9% year-on-year in July.