Macroeconomic Environment. Price Stability

The Outcome
It took a little less than five years for Latvia to move from being the fastest growing economy in the EU to the fastest shrinking and then back to fastest growth again.
Inflation and enterprises
Business enterprises in Latvia had to adjust to changing environment

Cost-push inflation in 2004-2005
Inflation went up, but unemployment decreased
Demand-pull inflation in 2006-2007
“Fat years”
High demand because living standard has increased

Inflation and enterprises II
Deflation 2010
Economic crisis
Debtors suffer
Decreased foreign demand and weak exports
An opportunity for low-price products and services (second-hand shops, fast food joints)

Inflation and enterprises III
Normal inflation in 2011-2012
2013 again shows signs of deflation
Administratively regulated prices are decreased to satisfy Masstricht criteria
Business enterprises can cut costs
…