Flash Comment - July 11, 2011: Lithuanian consumer prices decline in June

1. Flash comment
Economic commentary by Economic Research Department July 11, 2011
Lithuanian consumer prices decline in June
Contribution to annual CPI growth, In line with our expectations inflation slowed down in June when
pp prices decreased by 0.1% compared with May. Annual inflation
6 eased to 4.8% in June compared with 5% in May.
5
4 Food and beverage prices declined by 0.8% compared with May
3 and were the main factor behind deflation in June. Prices of
2 vegetables and pork declined the most, mainly due to seasonal
1 factors and lower demand because of pig plague. However, prices
0 of bread and milk products continued increasing.
-1
-2 Prices of footwear declined by 1.5%, mainly due to seasonal sales.
2010 2011 Prices of clothes were 0.3% higher than a month ago, but will
Food Trans ports Housing
Others CPI growth probably decline in July. Transport prices were 0.1% lower than a
Source: Statis tics Lithuania, Swedbank calculations month ago, and are likely to keep this trend in July (due to lower oil
prices).
In June, compared with May, producer prices declined by 0.8%.
Annual producer prices in Lithuania, However prices of products sold in Lithuanian market were
% yoy unchanged. Manufacturers of beverages had biggest positive
40 impact on producer prices (+0.127pp), whereas producers of food
30 (-0.137 pp) and refined petroleum products (-0.056 pp) had
20 negative impact on producer prices.
10
0
Outlook
-10 So far mainly external supply factors were behind higher inflation.
-20 As oil and other commodities gradually recede from their recent
-30 highs, it is likely that annual inflation has already peaked and will
2007 2008 2009 2010 2011 decline gradually. Average annual inflation reached 3.2% in June
Lithuanian market Non Lithuanian market and is expected to be around 4% at the end of this year.
Source: Statistics Lithuania
High inflation expectations will cause more rapid increase of
wages, which in turn will add up to inflationary pressures next year.
Current increase in domestic demand is not sufficient to cause
capacity utilization constraints and subsequent demand-driven
inflation, but this may change in the second half of 2012.
Nerijus Mačiulis
Chief Economist
+ 370 688 76578
nerijus.maciulis@swedbank.lt
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