Deflation posted in 2002

The Lithuanian economy underwent deflation last year, as consumer prices edged down 1 percent in 2002 compared with 2001, driven mainly by a decline in food prices and education costs, the Statistics Department reported Jan. 9.

Rimantas Rudzkis, chief analyst at Vilniaus Bankas, Lithuania's largest commercial bank, said it was not surprising that annual deflation had been recorded, noting that the trend had a nominal character.

"One of the major reasons behind [last year's] deflation was the repegging of the lita to the euro in February of last year, as it resulted in raising the lita against both the euro and the U.S. dollar," Rudzkis said.

In October 2002 compared with early 2002, the lita's exchange rate against the euro increased by about 6 percent, while against the dollar it rose by 13 percent - 14 percent, Rudzkis added.

In December 2002 consumer prices edged up by 0.4 percent, compared with November. December was the fourth month of the year that consumer prices rose in Lithuania.

In 2001, an annual inflation of 2 percent was recorded in Lithuania.

The Statistics Department cited a 5.3 percent drop in prices of foodstuffs and non-alcoholic beverages as the main factor contributing to the decline in consumer prices.

However, the decline was partly offset by a 9.4 percent rise in transportation costs and a 1.5 percent rise in household maintenance costs, water, electricity, gas and other fuel prices.

In Rudzkis' words, the December inflation rate of 0.4 percent is slightly above analysts' expectations, since price growth is normally non-existent by the Christmas season, which offers various discounts to customers.

"December inflation reinforced the trends of growing consumer prices over the past few months, and these trends are expected to prevail this year as well," Rudzkis said.

In his words, if the world does not experience unpredictable global shake-ups that could push the U.S. dollar still further down, Lithuania should see inflation of around 2 percent in 2003.