Meanwhile, inflation compensation for investors implied by the spreads between the rates on nominal and CPI-indexed Treasury notes at both five- and ten-year maturities also has not shown any tendency to move higher on balance. In recent years, declining prices of imports and the threat of import competition have also probably held down costs and prices to a degree.
For quite a while now, the main problem of the Latvian economy has been the overly high domestic demand that exceeds supply; the economists call it “overheating” of the economy. The budget deficit is also too high for this juncture in our economic development: we are not saving for the moment when the pace of the economy will abate.