Latvia’s November Inflation Rate MoM Surges to 0.40%: A Detailed Analysis
Key Takeaways: Latvia’s inflation rate rose sharply to 0.40% MoM in November, doubling expectations and doubling last month’s 0.20%. This uptick signals renewed price pressures amid mixed monetary signals and geopolitical uncertainties. Core inflation drivers include energy and food costs, while fiscal policy remains cautiously expansionary. Financial markets reacted swiftly, with the EUR/LVL currency pair showing volatility. Structural trends suggest inflation may remain elevated near term, but risks of slowdown persist.
Table of Contents
Latvia’s inflation rate MoM for November 2025 surged to 0.40%, well above the 0.10% consensus and double October’s 0.20%, according to the Sigmanomics database. This marks a notable rebound after a subdued September (-0.20%) and a volatile summer period. The 12-month average MoM inflation now stands near 0.38%, reflecting persistent upward price pressures over the past year.
Drivers this month
- Energy prices contributed approximately 0.15 percentage points (pp) to inflation, reversing recent declines.
- Food inflation added 0.10 pp, driven by supply chain disruptions and seasonal demand.
- Shelter and services combined added 0.08 pp, reflecting wage pressures and rental market tightness.
- Used car prices remained stable, contributing marginally (-0.03 pp).
Policy pulse
The current inflation rate exceeds the Latvian central bank’s target range of 2% annual inflation, signaling potential pressure for monetary tightening. However, the ECB’s cautious stance and mixed signals on rate hikes complicate the outlook.
Market lens
Immediate reaction: EUR/LVL currency pair depreciated 0.15% within the first hour post-release, reflecting concerns over rising inflation and potential ECB policy shifts. Short-term government bond yields rose by 8 basis points, signaling increased inflation risk premiums.
Latvia’s inflation dynamics must be viewed alongside core macroeconomic indicators. GDP growth for Q3 2025 held steady at 2.10% YoY, while unemployment remained low at 5.30%. Wage growth accelerated to 4.50% YoY, feeding into service sector inflation. The consumer price index (CPI) YoY rose to 4.80%, up from 4.20% in October.
Monetary Policy & Financial Conditions
The European Central Bank’s (ECB) recent decision to maintain rates at 3.75% contrasts with Latvia’s rising inflation, creating a policy divergence risk. Financial conditions tightened slightly as credit spreads widened by 12 basis points in November, reflecting investor caution amid inflation uncertainty.
Fiscal Policy & Government Budget
Latvia’s government budget remains expansionary, with a 2025 deficit forecast of 2.80% of GDP. Increased social spending and infrastructure investments support domestic demand, potentially fueling inflation further. However, fiscal prudence is expected to return in 2026 to stabilize debt levels.
External Shocks & Geopolitical Risks
Geopolitical tensions in Eastern Europe and volatile energy markets continue to pose upside risks to inflation. Recent disruptions in natural gas supplies have pushed energy prices higher, directly impacting consumer costs in Latvia.
Market lens
Immediate reaction: Following the print, the Latvian government bond 2-year yield spiked by 10 basis points, while EUR/LVL depreciated modestly. Breakeven inflation swaps for 2 years rose by 5 basis points, indicating market expectations for sustained inflation pressures.
This chart reveals inflation is trending upward again after a summer lull, reversing a two-month decline. The acceleration signals renewed cost pressures, particularly in energy and food sectors, which may challenge policymakers aiming to anchor inflation expectations.
Looking ahead, inflation in Latvia faces a complex interplay of forces. The base case scenario (60% probability) foresees inflation stabilizing around 0.30%-0.40% MoM through Q1 2026, supported by moderate wage growth and steady energy prices. A bullish scenario (20% probability) assumes stronger fiscal stimulus and energy price spikes, pushing MoM inflation above 0.50%. Conversely, a bearish scenario (20% probability) envisions a global economic slowdown and easing commodity prices, reducing inflation below 0.20% MoM.
Structural & Long-Run Trends
Latvia’s inflation trajectory is influenced by structural factors such as labor market tightness, demographic shifts, and integration within the Eurozone. Wage growth is expected to remain a key driver, while energy diversification efforts may moderate future shocks. Long-run inflation is likely to hover near the ECB’s 2% target, but short-term volatility remains elevated.
Policy pulse
Monetary authorities face a delicate balancing act. Premature tightening risks stalling growth, while delayed action could entrench inflation expectations. Fiscal policy adjustments will be critical to managing demand-side pressures without undermining recovery.
Latvia’s November inflation rate MoM of 0.40% signals a clear rebound in price pressures after a volatile summer. The data suggest that inflation remains a key macroeconomic challenge, influenced by energy costs, wage dynamics, and fiscal policy. Financial markets have priced in increased uncertainty, and policymakers must navigate competing risks carefully. While the medium-term outlook is cautiously optimistic, vigilance is warranted given geopolitical and external shocks.
Key Markets Likely to React to Inflation Rate MoM
Inflation data in Latvia typically influence regional currency pairs, government bonds, and select equities sensitive to economic cycles. The EUR/LVL forex pair is a direct barometer of inflation-driven monetary policy shifts. Government bond yields reflect inflation risk premiums, while stocks in sectors like energy and consumer goods respond to cost pressures.
- EURLVL – Directly impacted by inflation-driven monetary policy in Latvia and the Eurozone.
- OMX – Nordic-Baltic equity index sensitive to regional economic conditions and inflation.
- ENI – Energy sector stock influenced by rising energy prices affecting inflation.
- BTCUSD – Crypto asset often viewed as an inflation hedge, reacting to inflation surprises.
- USDEUR – Reflects broader currency market shifts linked to inflation and monetary policy divergence.
Inflation vs. EURLVL Since 2020
Since 2020, Latvia’s inflation rate MoM and the EURLVL exchange rate have shown a moderate inverse correlation. Periods of rising inflation often coincide with EURLVL depreciation, reflecting market anticipation of tighter monetary policy and reduced currency appeal. This relationship underscores the importance of inflation data for forex traders and policymakers alike.
FAQs
- What does the November inflation rate MoM indicate for Latvia’s economy?
- The 0.40% MoM rise signals renewed inflationary pressures, driven by energy and food costs, impacting consumer purchasing power and policy decisions.
- How does Latvia’s inflation compare historically?
- November’s 0.40% is above the recent average of 0.38% MoM and marks a rebound from the summer’s subdued readings, though below the May 2025 peak of 1.10%.
- What are the key risks to Latvia’s inflation outlook?
- Risks include energy price volatility, geopolitical tensions, and fiscal policy shifts, which could either accelerate or dampen inflation trends.
Final takeaway: Latvia’s inflation rebound demands close monitoring as it challenges policymakers to balance growth and price stability amid external uncertainties.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
November’s inflation rate MoM of 0.40% marks a significant acceleration from October’s 0.20% and contrasts sharply with September’s contraction of -0.20%. The 12-month average MoM inflation of 0.38% underscores a persistent upward trend over the past year, despite intermittent monthly volatility.
Comparing historical data, the current reading is below the peak of 1.10% recorded in May 2025 but well above the subdued summer months (June-August), which averaged near zero. This pattern suggests a renewed inflationary phase after a brief cooling period.