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Professional Higher Education Bachelor's Programme

“European Business Studies”

Course Paper in Economics

TITLE

Author: _______________

Group D1AX

Supervisor:_______________

Riga, Month 2013

TABLE OF CONTENTS

1. Introduction 3

2. Literature survey 4

2.1 The nature of inflation 4

2.2 Methods of measuring inflation 6

2.3 Reasons and consequences of inflation 9

3. Practical rationale for analysing price dynamics in Latvia 13

3.1 Research into the causes of price changes in Latvia 14

3.2 Overall analysis of price dynamics in Latvia 18

3.3 Examination of price dynamics in relation to particular group of products in Latvia 22

4. Conclusions 25

5. Recommendations 26

6. Bibliography 27

7. Appendices 28

LIST OF TABLES, FIGURES AND FORMULAS

Formulas
Formula 2.1: GDP deflator 7

Formula 2.2: Inflation Rate Equations Formulas Calculator 7

Tables
Table 3.1: Compliance with Maastricht criteria 12

Table 3.2: Government deficit 14

Figures
Figure 3.2: Nominal and real household consumption 15

Figure 3.3: Household savings 16

Figure 3.4: Inflation in Latvia 1991 - 2012 17

Figure 3.5: Harmonized consumer price index of the EU Member States 18

Figure 3.6: Private consumption and consumer price index 19

Figure 3.7: Changes of producer prices 20

Figure 3.8: Consumer prices, producer prices and deflator's value changes 21

Figure 3.9: Consumer price changes by commodity groups 23

1. Introduction

In the end of 2012 Latvia has fulfilled the Maastricht criteria regarding an establishment of the single European currency. One of the potential risks of that is the inflation criterion. Therefore, analysis of trends in price development in Latvia is an important and relevant task as the