Low Latvian inflation keeps euro bid on track

(RIGA) - Latvian inflation fell sharply to 0.6 percent in January on a 12-month basis official data showed Friday, keeping alive the Baltic state's hopes of adopting the euro as its currency next year.

December's 12-month inflation rate was the same rate recorded in November and October.

Compared to December, prices fell 0.2 percent in January. The rising cost of food was negated by lower clothing and communications prices, Statistics Latvia said.

"This was significantly below our forecasts. The unexpected deflation in January can basically be explained by the prices of apparel and footwear that declined by 7.3 month-on-month," Nordea bank economist Andris Strazds told AFP.

"Average inflation in 2013 is expected to remain at or slightly below 2.0 percent." he said.

Average annual inflation for the previous 12-months was 2.0 percent in January, down on the 2.3 percent level recorded in December, and 2.5 percent in November.

This indicator is a key measure used to assess a country's eligibility for eurozone entry, which Latvia has targeted for 2014.

The steady downward trend in the rate will bolster Latvian claims that the economy is now on a sustainable path after years of see-sawing macroeconomic data.

Parliament approved a euro changeover plan last month, paving the way for the former Soviet republic of two million to make a formal entry request to Brussels, expected in early March.

Riga insists it already meets eurozone rules on inflation, debt and deficit levels, but Brussels is expected to deliver its verdict in the middle of the year.