Flash comment: Lithuania - January 9, 2019
Annual inflation sharply decelerates in December

Due to the retreat in the oil prices and Christmas sales prices decreased by 0.6% in December and annual inflation dropped to 1.9%. Prices of goods were 1% higher than a year ago, while prices of services grew by 4.3%.

Housing, electricity and fuels were the main contributors to the annual inflation. Together they added 1pp to the annual inflation. Restaurants and hotels added further 0.3pp. Food, clothing and footwear, and communications all cost less than a year ago and together contributed negative 0.28pp to the annual inflation.

Exactly in line with our forecast, the average annual inflation in 2018 dropped to 2.7% and was a full percentage point lower than in 2017. On average, goods prices inflation was muted last year, while services inflation was markedly higher due to rapid wage growth.

Inflation should remain stable in 2019

Price growth is set to fluctuate around a similar level in the near future. The main factors of inflation should remain the same in 2019. Growth of prices of goods should remain muted. Oil may have a dampening effect on inflation this year as concerns about global demand are mounting, however story could be reversed in case of easing trade tensions or a supply shock. Services prices will continue growing at an accelerated pace as wage growth will remain high. Prices of gas and electricity have increased this year and will boost inflation, changes to excise duties will also contribute positively to it.

For more information about this report, please contact:

Vytenis Šimkus, +370 687 17870, vytenis.simkus@swedbank.lt.

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