Inflation hits 12.5% in Lithuania

  • 2008-07-10
  • By Mike Collier
VILNIUS 's Lithuania became the last of the Baltics to release monthly inflation figures this week and provided a nasty sting in the tail after Estonian and Latvian figures that were marginally better than many had feared, if still far from satisfactory.

In June 2008, Lithuanian annual inflation hit 12.5 per cent, mostly influenced by a 18.9 per cent price rise for food products and non-alcoholic beverages, a 17.9 per cent rise in housing costs, water, electricity, gas and other fuels, and a 17.3 per cent hike in transport.

Prices for consumer goods and services in June 2008 as compared with May rose by 0.6 and 0.7 per cent respectively.

Consumer goods showed an annual increase of 12.5, while services have risen by the same amount.

Average annual inflation now stands at 9.1 per cent.

Danske Bank analyst Violeta Klyviene said the rise was "As was broadly expected," but warned that "The planned introduction of inflation indexation of the minimum wage and social benefit

could lead to a wage-inflation spiral and have very negative implications for the budget. We believe financial markets will react unfavourably to this irresponsible policy."

"The outlook for the Baltic States is bleak," said Neil Shearing of Capital Economics in a summary of the economies of Central and Eastern Europe released July 10. "GDP growth has slumped following a period of overheating and with private consumption 's the key driver of growth 's now contracting, recession seems inevitable. While retail sales rebounded in April, we see this as a temporary blip due to the timing of Easter.

"What's more, with double-digit inflation showing no signs of easing, the region has plunged into a classic stagflation scenario. In Latvia, headline inflation rose to nearly 18% in May, while in Estonia and Lithuania it is running at around 12%. Rampant inflation is being driven by two main factors. Firstly, rapid wage growth is pushing up unit labour costs. While this should subside as conditions in the labour market deteriorate, the authorities will be alive to the threat of mounting inflation expectations."