In June, consumer prices in Lithuania declined for the first time in 2012, falling 0.1% due to lower fuel, vegetable, dairy, and clothing prices. Producer prices also declined for the third straight month. The chief economist forecasts further price declines this summer, with annual inflation reaching around 2.8% by year's end. Meeting the Maastricht inflation target of below 2% is possible early in 2013, though regulated prices such as gas and heating are expected to rise in the second half of the year.

1. Flash comment: Lithuania
Economic commentary by Economic Research Department July 10, 2012
In line with expectations, prices declined in June
Contribution to annual CPI growth, pp As expected, for the first time this year prices have declined by
6 0.1% in June. The average annual consumer price inflation
5 decreased by 0.2 percentage points to 3.7% and is likely to
4 decrease during the coming months.
3
2 Deflation was caused mainly by lower fuel prices (-0.255 pp
1 impact), vegetables (-0.1 pp), dairy products and eggs (-0.063).
0 Summer sales have also pushed lower the prices of clothing and
-1 footwear. Price of alcoholic beverages and tobacco increased by
-2
1.2%.
2010 2011 2012
Food Trans ports Hous ing In June producer prices have been declining for the third month in a
Others CPI growth
Source: Statistics Lithuania, Swedbank
row, suggesting further downward pressure for consumer prices.
Producer prices are dropping faster for products sold in non
Lithuanian markets, indicating somewhat fiercer competition in
languishing European economy.
Changes in prices of industrial
production, yoy Outlook
30 We forecast further price decline during the remaining months of
25 this summer. Average annual inflation will be around 2.8% at the
20 end of this year and is likely to decline further in 2013. Future
15 trends will depend on developments in commodities markets, as
10 domestic factors will have limited effect – capacity utilization is still
5 below optimal level and wage growth is in line with productivity
0
growth.
-5
-10 Meeting price stability Maastricht criteria is still possible at the
2010 2011 2012 beginning of 2013, however, there is an obvious lack of political will
Total market Lithuanian market
Non Lithuanian market (or power) to abstain from price increases in regulated markets. In
Source: Statistics Lithuania the second half of this year gas for households will be 22% more
expensive; price of heating will also rise in most of the cities. Price
of public transport in Vilnius will increase starting mid-august. All
these changes seem somewhat unjustified considering significant
decline in oil prices.
Nerijus Mačiulis
Chief Economist
+ 370 5 258 2237
nerijus.maciulis@swedbank.lt
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