End of Inflation in LT?

ADVERTISEMENT

Inflation in Lithuania, economists say, is virtually gone. However, the overall price level is higher than three years ago and is not going down. Inflation has finally come to a real halt. In April, both monthly and annual inflation in Lithuania stood at 0.1 percent. While many services continue getting more expensive, prices of non-food products have stabilized, while food prices have even decreased. “If we look at the annual price change, food is slightly cheaper compared to last year. But in April, food became slightly more expensive,” points out Tadas Povilauskas, economist at SEB Bank.

Arūnas Tarnauskas, a business owner who runs 64 grocery stores in Lithuania, says that in some areas his store is the only place where people can shop. The buyers are mostly elder people who live in rural areas. “Our shoppers are price-sensitive and react because price changes are hard for them. When we lower the price, it’s less perceptible. But when it gets more expensive, everyone reacts,” says Tarnauskas.

Economists say near-zero inflation in April is lower than usual for this month. This is due to the ongoing effect of cheaper energy resources. “Oils, grain products have become cheaper. And quite significantly. Vegetables went up, while other products remained at the same level. So, in general terms, we saw a basket becoming cheaper in the first quarter,” says Tarnauskas.

However, while inflation has abated, prices remain at a higher level compared to before the energy crisis. “Roughly speaking, prices in Lithuania have risen by around 30 percent over the last four years,” calculates Povilauskas. Still, people’s purchasing power has been growing in tandem with the prices, says economist Povilauskas.

“We had double-digit growth figures. At 10 percent annually in the last 4–5 years, overtaking inflation. […] At the beginning of this year, the purchasing power of the working person is back to the level of two years ago, and that of the pensioner has definitely returned,” says the economist. The exception, however, are people with mortgages who have to pay significantly higher interest.

Retail sales have grown. But, says Pricer.lt, only because spring is unusual this year: February is a day longer and Easter was earlier than usual. In the summer, retailers expect to increase their turnovers, as is usually the case. In some regions, they are even hiring additional staff.

“The income of the Lithuanian population is rising, which means that, one way or another, there is still money to be spent on something. So if the weather is good, the mood is good, the supply is at hand, people spend,” says Tarnauskas.

Economists now look forward to seeing inflation figures for May. If fuel prices go even lower, a modest annual deflation is possible in May. In autumn, however, the effect of cheaper energy will end. Economists are forecasting annual inflation of 1–2 percent by the end of the year.