VILNIUS - The Cabinet of Ministers has approved an inflation-fighting plan as consumer prices in Lithuania continue to climb and approach the double-digit threshold.
In accordance with the plan, which was approved on Dec. 13, ministries will undertake efforts to stabilize housing prices, intensify competition, crack down on possible cartel arrangements and rethink policies for regulated prices, the government's press service said.
The plan mirrors a similar program adopted by the Latvian government earlier this year that has so far failed to prevent inflation from further increasing.
Annual inflation in Lithuania reached 7.9 percent as of November, which contrasts to 4.5 percent recorded in January. Monthly inflation was 1.1 percent.
Analysts agree that prices will continue to rise and hit 10 percent in early 2008 as prices for food and energy continue to climb and excise taxes are brought in line with EU levels.
The Social Democrat-led government also appears ready to throw fuel into the flames by boosting pensions and other social benefits so that lower-income individuals can cope with the price-rise.
What's more, the government may also increase the minimum wage for private and public sector employees.
Fiscal policy, in the meantime, has been all but factored out. On Dec. 12 President Valdas Adamkus signed into law the 2008 budget, which provides for a 0.5 percent budget deficit.
During the current period of double-digit economic growth, many economists have recommended that the government cut back on expenditures and run a slight budget surplus. The IMF, for instance, as early as January recommended that the government restructure its fiscal policy and eliminate tax breaks designed to help the poor. Prime Minister Gediminas Kirkilas rejected the recommendations.
Without more rigorous use of fiscal policy, Lithuania is likely to face a prolonged period of double-digit inflation such as Latvia is currently struggling to cope with, analysts say. Forecasts of a decline will prove to be elusive, and then ministers will have to scramble to make up for lost time.
"We doubt that authorities' hopes that inflation will hit its highest level early next year and then fall 's to reach the level close to Maastricht level in the second half of 2009 's will come true," said Gitanas Nauseda, a SEB Vilniaus Bankas official was quoted as saying.
Lithuania's current account deficit continues to be a concern after it soared 44.3 percent from January to October this year, comprising 9.7 billion litas (2.8 billion euros), the Bank of Lithuania said Dec. 12. The deficit for October was 19.5 percent higher compared with a year earlier. The gap points to another imbalance in the economy that the government must address.