Flash comment: Lithuania - November 9, 2017
The start of descent for inflation

 In monthly terms, consumer prices rose by 0.2% in October, while annual inflation decelerated to 4.4%. Average annual inflation picked up to 3.3%.

Annual growth in the prices of consumer goods decelerated from 4,4% in September to 4% in October. Meanwhile, annual growth in the prices of services eased somewhat at 5.7%. Prices of food and non-alcoholic beverages increased by 5.6% while prices of alcoholic beverages increased by 11.8%. Growth of hotel and restaurant prices increased to 8.6% - fastest annual rate since 2009.

Increases in prices of beer and dairy products, together contributed 1.1 p.p. to CPI, restaurants added 0.34 p.p. while vegetable oil and butter contributed further 0.23 p.p. In months’ time price of oil increased from $56.7 to $61.1 for a barrel while price of butter dropped considerably from EUR 635 to EUR 516 for 100 kg. Oil prices are elevated due to expectations that OPEC will continue restricting supply in 2018 and increased demand for oil in the growing world economy. It was not a great year if you like beer with cheese snack, but at least croissant crisis is over.

Price growth is fueled by taxes and commodities

We revised our CPI forecast from 3.5% to 3.7% for 2017 and up to 3.3% for 2018. Inflation of both goods and services slowed down in October indicating the beginning of expected easing of inflation. Unexpected increases in oil prices might push inflation higher towards the end of year and for the next year. Meanwhile the pressure created by steep increase of minimum wage should start to dissipate. Effect of excise duties will mostly disappear next spring which will have considerable impact. ;

For more information about this report, please contact Mr. Vytenis Šimkus, +370 5 258 5163, vytenis.simkus@swedbank.lt
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