Membership stirs-up prices

  • 2005-05-11
  • By Milda Seputyte
VILNIUS - It wasn't long after EU accession that the Baltic's euphoria was dampened by rising prices. In all three states, inflation was met with growing skepticism over changes the EU had lined-up for the market. In Lithuania, the biggest price-increase during the first year of membership was in beef, milk and bread products, yet food product inflation still hasn't reached the levels of 2000-2001.

Prices began rising one cent after another in the beginning of 2004, while Lithuania was counting down the weeks until enlargement.

Annual April-on-April inflation tendencies showed that prices soared the most in Lithuania's healthcare system (9.4 percent), transportation services (7.7 percent) and food and beverages (5.9 percent). Only the cost of alcohol went down, due to the elimination of import taxes. Since April 2004, prices in Lithuania have increased by 3.2 percent.

On average, one used to spend 2 litas (.6 euros) for a kilogram of bread in the beginning of 2004. Only several months later, in May, the same piece of bread wore a sticker indicating 20 cents more.

However, it was meat products that gave consumers the biggest blow 's prices swelled by 2 litas within just two months of accession 's from 7.59 litas to 9.79. And keeping in mind that a kilogram of meat in December 2003 did not even reach 6 litas, it's easy to understand consumers' fury. It's also important to mention that food expenses in Lithuania account for 28.4 percent of the country's resident expenditure.

Experts say that the price of beef increased due to growing export capacities and, consequently, a of product on the national market. With open borders, Lithuanian exporters have enjoyed not only an open EU market with better prices, but also huge sums of subsidies for exports to non-EU countries.

Nearly all products produced in Lithuania are now more expensive, however the biggest boost was registered for imported goods - rice and bananas nearly doubled, for instance. A year ago, the price of bananas was 2 litas and now the fruit costs almost 5 litas.

The stark differences in prices raised concerns even among high state officials. Suspecting that the prices might have become a manipulation tool for businessmen, Prime Minister Algirdas Brazauskas requested the Office of Fair Competition to conduct an investigation. The results were reassuring. It was revealed that food product prices had increased due to grounded economic reasons related to bigger expenses for material and petrol. Also, experts implied that new quality standards and higher employee salaries might have boosted costs as well.

A steady increase in nutrition and fuel prices is the major factor behind rising inflation. In April, average annual inflation reached 2.6 percent. According to Maastricht Treaty regulations, the average annual inflation rate is used to analyze a country's readiness to introduce the euro.

"Last month we reached the Maastricht's control limit, and now we are starting to exceed it," said Raimondas Kuodis, director of the Bank of Lithuania's economy department. However, he also claimed that the final decision about the introduction of the euro would be highly political.

"The control limits are the base for decision making. A state might implement all necessary criteria, but the doors to the eurozone still might be closed if it's decided that the implementation is trivial and achieved with artificial tools. And on the contrary, a state might not fulfill some control limits, but the EU ministers might allow the country to become a member of the eurozone," Kuodis told Elta.

Yet, despite rising prices in supermarkets, retail turnover in Lithuania grew by nearly 10 percent in one year, second to Slovakia.

However, it's important to note that the price-increase still hasn't reached the boom of the year 2000. Following Russia's economic crisis, beef prices ranged from 11 to 13 litas and pork was even more expensive.

Lithuanian farmers should be happy: beef prices have gone up by 44.1 percent, and milk prices have increased 37.3 percent in the past 12 months. But still, farmers represent the biggest group of Euroskeptics today, despite receiving large sums of EU financial assistance (over 600 million litas of direct payouts in 2004). They have recently been using fuel inflation as the major argument for their dissatisfaction.