Latvia's Inflation Rate MoM for December 2025 Shows Mild Deflation Amid Volatile Trends
Latvia's inflation rate for December 2025 registered a modest decline of -0.10% month-over-month (MoM), slightly above the -0.30% contraction recorded in November 2025, according to the latest release from the Sigmanomics database. This marks a continued trend of subdued inflationary pressures as the Baltic economy navigates a complex macroeconomic environment.
Table of Contents
December 2025's inflation rate of -0.10% MoM in Latvia reflects a mild deflationary phase, improving from November's sharper -0.30% decline. This follows a volatile pattern over the past year, with inflation oscillating between positive and negative monthly changes. The 12-month average inflation rate stands near 0.15%, indicating overall low but positive price growth on an annual basis.
Drivers this month
- Energy prices stabilized after previous months of decline, limiting further deflation.
- Food prices showed minor decreases, contributing -0.04 percentage points to the overall MoM change.
- Core services inflation remained flat, reflecting steady domestic demand.
Policy pulse
The Bank of Latvia's inflation target remains at 2%, well above current readings. The subdued inflation rate keeps monetary policy accommodative, with no immediate pressure for tightening. The central bank continues to monitor inflation dynamics closely amid external uncertainties.
Market lens
Immediate reaction: The EUR/LVL currency pair showed minor appreciation of 0.1% within the first hour post-release, reflecting market relief at the softer deflation. Short-term government bond yields edged down by 3 basis points, signaling cautious optimism.
Latvia's inflation rate for December 2025 (-0.10%) contrasts with the previous months' swings: October posted +0.20%, November -0.30%, and September -0.20%. The 12-month average inflation rate, calculated from January to December 2025, is approximately +0.15% MoM, indicating a low-inflation environment overall.
Monetary Policy & Financial Conditions
The European Central Bank (ECB) maintains a cautious stance amid persistent inflation uncertainty in the Eurozone. Latvia, as part of the Euro area, benefits from stable financing conditions. The ECB's key interest rate remains at 3.5%, with forward guidance suggesting a pause in hikes until clearer inflation trends emerge.
Fiscal Policy & Government Budget
Latvia's fiscal policy continues to focus on prudent budget management. The government reported a slight surplus in Q4 2025, supporting domestic demand without overheating the economy. Fiscal stimulus remains targeted, avoiding broad-based spending increases that could stoke inflation.
External Shocks & Geopolitical Risks
Global energy price volatility and geopolitical tensions in Eastern Europe continue to pose risks. However, Latvia's diversified trade links and energy sourcing have mitigated direct inflationary shocks in December.
Drivers this month
- Energy price stabilization contributed +0.03 pp to the inflation rate.
- Food and beverage prices declined by -0.04 pp, reflecting seasonal adjustments.
- Transport costs remained flat, neither adding nor subtracting from inflation.
This chart highlights a trend toward stabilization after two months of sharper deflation. Inflation is trending upward from November's trough but remains below historical averages, signaling a cautious recovery in price pressures.
Policy pulse
Inflation remains well below the ECB's 2% target, supporting a neutral to dovish monetary stance. The Bank of Latvia is unlikely to advocate for policy tightening in the near term.
Market lens
Immediate reaction: EUR/LVL currency showed a mild 0.1% appreciation, while 2-year government bond yields fell by 3 basis points, reflecting market expectations of prolonged accommodative policy.
Looking ahead, Latvia's inflation trajectory depends on several key factors. The base case scenario anticipates inflation hovering near zero to slightly positive MoM in early 2026, supported by stable energy prices and moderate domestic demand.
Bullish scenario (20% probability)
- Stronger wage growth and increased consumer spending push inflation above 0.5% MoM.
- Energy prices rise due to geopolitical tensions, adding upward pressure.
- ECB signals tightening, leading to higher borrowing costs and inflation expectations.
Base scenario (60% probability)
- Inflation remains subdued, fluctuating between -0.1% and +0.2% MoM.
- Monetary policy stays accommodative, supporting steady but low inflation.
- External shocks remain contained, with no major disruptions to supply chains.
Bearish scenario (20% probability)
- Deflation deepens to -0.5% MoM due to weak demand and falling energy prices.
- Fiscal tightening reduces domestic consumption.
- Geopolitical risks escalate, disrupting trade and supply chains.
Latvia's December 2025 inflation rate of -0.10% MoM signals a tentative easing of deflationary pressures after a volatile autumn. The low inflation environment supports continued accommodative monetary policy but warrants close monitoring of external risks and domestic demand trends. Policymakers face a delicate balance between fostering growth and avoiding entrenched deflation.
Investors and market participants should watch energy prices, wage dynamics, and ECB policy signals closely in the coming months. The inflation outlook remains uncertain but leans toward subdued price growth in the near term.
Key Markets Likely to React to Inflation Rate MoM
Latvia's inflation data typically influences regional currency pairs, government bonds, and select equities sensitive to economic growth and inflation expectations. The following symbols historically correlate with inflation trends in Latvia and the broader Eurozone:
- EURUSD – Euro to US Dollar pair reacts to Eurozone inflation shifts impacting monetary policy.
- OMX – Nordic-Baltic equity index sensitive to regional economic conditions and inflation.
- EURLVL – Euro to Latvian Lats (legacy) pair reflects local inflation and currency stability.
- BTCUSD – Bitcoin as an inflation hedge often moves inversely to inflation surprises.
- SEB – Major Nordic bank with exposure to Baltic economies, sensitive to interest rate changes.
Since 2020, EURUSD has shown a moderate inverse correlation with Latvia's inflation rate MoM. Periods of rising inflation often coincide with EURUSD strengthening, reflecting ECB tightening expectations. This relationship underscores the importance of inflation data for currency markets.
FAQs
- What does Latvia's Inflation Rate MoM indicate?
- It measures the percentage change in consumer prices from one month to the next, reflecting short-term inflation trends.
- How does the December 2025 inflation rate compare historically?
- December's -0.10% shows mild deflation, improving from November's -0.30%, and below the 12-month average of +0.15%.
- Why is inflation important for Latvia's economy?
- Inflation influences purchasing power, monetary policy, and economic growth, affecting households and businesses alike.
Takeaway: Latvia's inflation rate for December 2025 signals cautious stabilization after recent deflation, supporting a steady but accommodative policy environment amid external uncertainties.
December 2025's inflation rate of -0.10% MoM in Latvia shows improvement from November's -0.30% and remains below the 12-month average of +0.15%. This marks a partial reversal of the two-month deflationary trend observed in November and October.
Comparing recent months, October's +0.20% inflation was the last positive reading before November's sharper decline. The current print suggests inflationary pressures are stabilizing but remain weak.