The Producer Price Index (PPI) in Latvia accelerated to 0.80% MoM in November 2025, a notable jump from the 0.10% recorded in October. This increase is the highest monthly gain since March 2025’s 2.50% spike and reverses the subdued trend seen in the summer months. The PPI’s rise signals mounting cost pressures at the producer level, which could foreshadow consumer inflationary pressures in the coming months.

Drivers this month

• Energy prices contributed approximately 0.35 percentage points, reflecting higher global oil and gas costs.
• Intermediate goods prices rose by 0.25 percentage points, driven by supply chain constraints.
• Food processing sectors added 0.10 percentage points amid seasonal demand.
• Manufacturing input costs remained stable, contributing marginally to the overall increase.

Policy pulse

The 0.80% MoM increase places the PPI above the central bank’s comfort zone, suggesting persistent upstream inflationary pressures. This may influence Latvijas Banka’s monetary policy stance, potentially reinforcing a hawkish bias amid ongoing inflation concerns.

Market lens

Immediate reaction: The EUR/LVL currency pair weakened by 0.15% within the first hour post-release, reflecting concerns over rising inflation. Short-term government bond yields edged up by 5 basis points, while breakeven inflation rates for 2-year maturities rose 8 basis points, signaling heightened inflation expectations.

The PPI’s 0.80% increase contrasts with the subdued 0.10% in October and the negative readings seen in April (-1.90%) and August (-0.10%). Over the past 12 months, the average monthly PPI change stands at approximately 0.30%, making November’s reading more than double the annual average. This volatility reflects ongoing external shocks and supply chain disruptions.

Monetary policy & financial conditions

Latvia’s central bank has maintained a cautious approach, balancing inflation containment with growth support. The recent PPI surge may prompt tighter monetary conditions, especially as headline inflation remains above the 2% target. Financial conditions have tightened modestly, with credit spreads widening and lending rates inching higher.

Fiscal policy & government budget

Fiscal policy remains moderately expansionary, with government spending focused on infrastructure and social programs. However, rising producer prices could increase input costs for public projects, potentially straining budget allocations. The government’s budget deficit is projected at 2.50% of GDP for 2025, with inflationary pressures complicating fiscal planning.

External shocks & geopolitical risks

Global energy price volatility and supply chain bottlenecks continue to impact Latvia’s producer prices. Geopolitical tensions in Eastern Europe add uncertainty, particularly affecting trade routes and commodity availability. These external factors contribute to the upward pressure on producer costs.

Market lens

Immediate reaction: EUR/LVL depreciated 0.15% post-release, while 2-year government bond yields rose 5 basis points. Breakeven inflation rates climbed 8 basis points, signaling market anticipation of sustained inflation.

Looking ahead, the PPI trajectory suggests several scenarios for Latvia’s economy and policy environment:

Bullish scenario (30% probability)

• Global supply chains stabilize, easing input costs.
• Energy prices moderate, reducing inflationary pressures.
• Monetary policy remains accommodative, supporting growth.
• PPI growth slows to 0.20% MoM by Q1 2026.

Base scenario (50% probability)

• Producer prices remain elevated but stable around 0.50%-0.80% MoM.
• Monetary tightening continues gradually to contain inflation.
• Fiscal policy adjusts to higher input costs without major disruptions.
• Moderate inflation persists through 2026.

Bearish scenario (20% probability)

• Energy and commodity prices surge due to geopolitical shocks.
• Supply chain disruptions worsen, pushing PPI above 1.50% MoM.
• Monetary policy tightens aggressively, risking growth slowdown.
• Consumer inflation spikes, pressuring household budgets.

Structural & long-run trends

Latvia’s economy faces structural challenges including dependency on imported energy and raw materials. Long-term trends toward green energy and digitalization may moderate producer price volatility. However, demographic shifts and labor market tightness could sustain cost pressures over time.

The November 2025 PPI MoM reading of 0.80% signals a clear uptick in producer inflation in Latvia. This development underscores persistent cost pressures from energy and intermediate goods, influenced by global market dynamics and geopolitical risks. Policymakers face a delicate balance between curbing inflation and supporting growth amid tightening financial conditions. Market participants should monitor upcoming inflation data and central bank communications closely, as these will shape Latvia’s economic trajectory in 2026.

Key Markets Likely to React to Producer Price Index MoM

Markets sensitive to inflation data, such as currency pairs, government bonds, and inflation-linked securities, typically react swiftly to PPI releases. The EUR/LVL forex pair, Latvian government bonds, and inflation expectations instruments are particularly responsive. Additionally, commodity-linked equities and cryptocurrencies with inflation hedging characteristics may also see volatility.

• EURLVL – Directly reflects Latvia’s currency response to inflation data.
• OMX – Nordic-Baltic equity index sensitive to regional economic shifts.
• EUR – Eurozone currency impacted by inflation trends in member states.
• BTCUSD – Bitcoin as an inflation hedge may react to rising inflation expectations.
• USDEUR – Reflects broader currency market shifts linked to inflation and monetary policy.

FAQs

What is the significance of the Producer Price Index MoM for Latvia?

The PPI MoM measures monthly changes in producer prices, indicating inflationary pressures that can affect consumer prices and monetary policy.

How does the November 2025 PPI reading compare historically?

The 0.80% increase is the highest monthly gain since March 2025 and well above the 12-month average of 0.30%, signaling rising inflation pressures.

What are the risks associated with rising producer prices?

Risks include higher consumer inflation, tighter monetary policy, increased costs for businesses, and potential economic slowdown if inflation becomes entrenched.

Key takeaway: Latvia’s November 2025 PPI surge highlights intensifying inflation pressures, likely prompting cautious monetary tightening and market volatility in the near term.