RIGA, June16 (LETA) - The Bank of Latvia has raised its average annual inflation forecast for this year from the previously projected 3.2 percent to 3.6 percent, said Uldis Rutkaste, Head of the Monetary Policy Department at the Bank of Latvia, on Tuesday while presenting the latest economic forecasts.

Meanwhile, the annual average inflation forecast for 2027 has been raised from the 2.9 percent projected last December to 3.8 percent, while the forecast for average annual inflation in 2028 has been lowered from 3.6 percent to 3.4 percent.

At the same time, the Bank of Latvia expects that core inflation - inflation excluding food and energy prices - will be 3.3 percent in Latvia in 2026, 4 percent in 2027, and 4.3 percent in 2027.

The Bank of Latvia notes that domestic price increases are driven by global energy prices, which will affect core inflation with a lag.

The Bank of Latvia also notes that due to the ongoing war in the Middle East, inflation risks have become markedly upward-biased, as tensions could affect not only energy prices but also production costs for food and other goods, as well as inflation expectations.

The Bank of Latvia explains that the inflation forecast has been raised, primarily reflecting the global rise in energy prices linked to the conflict in the Middle East. The prolongation of hostilities and supply disruptions could drive up the costs not only of energy resources but also of food production, mineral fertilizers, and petroleum byproducts widely used in industry. The impact of this factor is mitigated by somewhat slower wage growth in recent quarters.