Flash comment: Lithuania - January 9, 2018
Average annual inflation at 3.7% in 2017
Annual inflation decelerated to 3.9% in December, while in monthly terms, consumer prices did not change. Annual growth in the prices of both, goods and services, eased towards the end of the year, to 3.4% and 5.3%, respectively. The dissipating effect of the minimum wage hike was one of the reasons behind the easing of the annual inflation.

In line with our forecasts, the average annual inflation stood at 3.7% in 2017. This was the highest inflation rate since 2011. The prices of alcohol and tobacco increased most last year – by 10.7%, on average, which was by and large resulted by hikes in excise duties.

Higher prices of dairy products and fats as well as oil in the global markets boosted the prices of food products and fuels. Prices increased across all consumer goods and services categories, except for communications. However, growth in the prices of services, supported by rapidly growing wages, outpaced that of goods. Last year the average annual growth in the prices of goods stood at 3.4% and that of services – at 4.7%.

Inflation will ease this year

Average annual inflation is expected to be lower this year and, according to our forecasts, to stand at around 3.3%. Although wage pressures will remain high, no sharp increases in the minimum wage are expected, thus wage growth and service price inflation will moderate this year. The effect of the excise duty hikes on alcohol should dissipate in spring and so far no major new increases in excise duties are in the pipeline. Oil prices (in US dollars) are likely to be somewhat higher this year, but the effect on inflation will be limited due to the appreciation of the euro.

This letter is distributed by Swedbank in cooperation with Brightly. The letter is personal.