**Dainis Gashpuitis, Chief Economist:** – In August, consumer prices increased by 0.3% compared to July, while annual inflation reached 3.2%. The main influence on the change in price levels over the month was the rise in energy costs, which affected transportation and housing expenses. At the same time, prices for food, as well as for clothing and footwear, decreased. After a summer easing of inflation, the risks of a new price increase are returning. The main factor now is the rise in energy prices. The price dynamics for food do not yet appear alarming; however, risks for the coming months, especially for next year, are already noticeable. Wage growth, although it has slowed this year, will still support price increases for services. The situation in the energy market is becoming increasingly tense. U.S. strikes on Iranian oil tankers and attacks on Saudi Arabia's oil and gas infrastructure have heightened concerns about supply, and market participants are increasingly assuming that the conflict may drag on. Global oil reserves continue to decline, which reduces the possibilities for stabilizing oil prices. Tension in the petroleum products market is even higher: diesel fuel refining prices have already reached record levels, and securing supplies is becoming more difficult. As winter approaches, demand will increase, and supply difficulties may intensify. Therefore, the risks of further increases in oil and petroleum product prices are very high. Tension is also rising in the natural gas market. The price of natural gas is around 75 euros per MWh, the highest level since the beginning of 2023. European gas storage facilities are only about 67% full, significantly below the historical level for this time of year. The main reason for the price increase is geopolitical tension in the Middle East and related disruptions in liquefied natural gas (LNG) supplies through the Strait of Hormuz. Before winter arrives, Europe still needs to purchase a significant volume of gas while competing with Asian buyers for available LNG shipments. Gradually, pressure is forming on food prices. The Food and Agriculture Organization (FAO) food price index rose by 1.9% in August, reaching 133.3 points, the highest level since November 2022. Prices increased across all major food categories, especially for sugar and grains. **Oskar Nik Malnieks, Economist:** – At the end of summer, there is usually a slight decrease in the overall price level. However, this time, the rise in fuel prices did not allow inflation to ease. In August, prices increased by 0.3% compared to July, and annual inflation again exceeded the 3% mark and is likely to continue rising until the end of the year. The greatest influence on monthly inflation came from transportation: prices here rose by 2.1%, mainly due to an 8.8% increase in fuel prices. More expensive thermal energy increased the cost of goods and services related to housing by 0.7%. On the other hand, seasonal price decreases for food held back monthly inflation by 1.2%. In previous months, several factors had restrained inflation. Energy and financial markets calmed down due to a fragile ceasefire in the Middle East and increased traffic through the Strait of Hormuz. However, in August, both military and economic hostilities resumed, accompanied by a sharp rise in oil prices. The price of crude oil reached $100 per barrel, and the refining margin for petroleum products rose to record levels, indicating even higher fuel prices for consumers. In early September, the wholesale price of diesel fuel was twice the price of crude oil. The price of natural gas also rose to 73 euros per MWh, more than double the level of September last year. Gas storage facilities—both in Inčukalns and in Europe as a whole—are gradually filling up; however, the accumulated volume is comparatively lower than in recent years. As for food prices, the reduced VAT on certain food products, introduced in July, will continue to restrain price growth for food and overall inflation until June next year. In August, food was 4% cheaper than a year ago. **Pēteris Straujiņš, Chief Economist:** – In August, consumer prices increased compared to July, although there is usually monthly deflation at this time. The main factor that prevented the usual seasonal price decrease in August was the rise in transportation costs. Fuel prices tend to follow oil prices over time, so another increase is expected in September. At the same time, prices for food and non-alcoholic beverages in August were 4% lower than a year ago. This is the most significant price decrease for these goods since March 2010. Food prices reduced annual inflation by 0.91 percentage points, while transportation increased it by 1.12 p.p., and energy consumed in the housing sector added almost as much. In September, annual inflation will significantly increase and exceed 3.5%. The possibilities for tax changes to reduce food prices seem to have already been exhausted, and the cost of living will continue to rise due to energy prices. In particular, further increases in heating tariffs are expected, and fuel prices will also rise due to declining global reserves that have so far protected consumers from higher prices. **Kārlis Purgailis, Chief Economist:** – Inflation has started to accelerate again, with its main factors still being categories related to energy, primarily transportation and housing expenses. Geopolitical tension in the Middle East continues to play a significant role, sustaining record-high oil prices in the global market. The second important factor of inflation is the services sector, where the impact of rapid wage growth in previous years is still felt. Although wage growth rates are gradually becoming more moderate, high labor costs continue to be reflected in service prices. This is confirmed by data: compared to the average price level in 2025, service prices in August this year were 7.4% higher, while goods prices increased by 1.8%. A positive signal is the decrease in food prices. The reduced VAT rate on certain products, introduced in July, continues to alleviate price pressure in this category. Food remains the only major group of consumer goods that is holding back overall inflation. The conflict in the Middle East continues, so oil and natural gas prices continue to rise this month. The price of Brent oil has risen to nearly $100 per barrel, and the price of natural gas has increased by more than 130% over the year. This indicates that inflationary pressure may remain elevated in the coming months and is likely to persist at least until the end of the year. Therefore, the forecast remains that by the end of the year, inflation in Latvia may approach 4%.
