Flash comment: Lithuania - January 11, 2016
Prices dropped by 0.9% in 2015, inflation will return this year

In December consumer prices were 0.3% lower compared with November and 0.1% lower than a year ago. Average annual deflation was at 0.9% in 2015.

 

In December, compared with a month ago, prices decreased mainly due to 0.8% cheaper food and non-alcoholic beverages.

Prices of goods last year were 2.2% lower than in 2014 due to lower commodity prices. Food last year on average was 1.2% cheaper than a year ago, housing – 4.8% and transport – 7.1% cheaper. While services prices rose by 3.5% due to rising wages and rounding up of prices after euro introduction in some cases. Prices of recreation and culture services were 3.0% higher than a year ago, while services of hotels and restaurants were 4.7% more expensive. Rising services prices contributed to higher core inflation, which increased to around 2% during the last two months of 2015.

However, as expected euro introduction had a very little effect on inflation. According to Eurostat, the euro introduction in Lithuania added 0.04-0.11 percentage points to inflation and the effect was the smallest among Baltic states. Moreover, residents, businesses and the state saved almost EUR 180 million due to lower borrowing costs, cheaper cross-border payments in euro and disappeared expenses related to the litas and euro exchange operations.

Outlook: inflation will return this year

Producer prices in Lithuanian market in November were still 9.1% lower than a year ago. However, inflation will return this year as acceleration in wage growth and rather rapidly rising minimum wage will further push up prices of many services. Commodity price developments most likely will be less favorable as well. We expect inflation to reach around 2% this year.


For more information about this report, please contact Ms. Vaiva Šečkutė, +370 5 258 2156, Vaiva.Seckute@swedbank.lt

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