Latvian Consumers Braced for Delayed Gas Price Shock

Natural gas prices in Europe have surged by 14% over five trading days and 83% since the beginning of the year, putting Latvian consumers on high alert for another gas price shock. According to Kārlis Purgailis, Chief Economist at Citadele Bank, unlike Lithuania and Estonia, Latvia's consumers will not feel the immediate impact of this increase in their everyday expenses.

The delay is due to Latvia's market-based prices responding to increases in gas prices with a lag of several months. The benchmark TTF natural gas price has risen significantly, and the conflict in Iran, which began on 27 February and resumed in July, remains a major constraint on supplies.

Citadele Bank estimates that a 10% increase in gas prices raises overall energy prices by 1.79%, housing and utility costs by 1.43%, and food prices by 0.58%. The strongest impact will be felt in housing and utility costs, followed by the gradual feed-through into food, goods, and services.

The difference in how quickly higher gas costs feed through into consumer prices is significant between Latvia and its neighboring countries. In Estonia, the overall inflation index responds immediately, while in Lithuania it appears after two months and in Latvia after three months.