VILNIUS - Despite widespread fears to the contrary, the Baltic states' membership in the EU has not equated to drastic price increases. In fact, economists forecast that consumer purchasing power will actually become greater - not weaker- as the regional economy converges with those of older member states.
Images of thousands of Estonians, Latvians, and Lithuanians - lined up to hoard staple goods they feared would dramatically increase in price - created a popular notion that EU membership would bring severe inflation.
However, price-increase targets set by top economists forecast instead an economic climate friendly to both consumers and producers, although a degree of uncertainty exists in Latvia, where prices from March 2003 to March 2004 increased 5.7 percent.
Curbing inflation in the Baltic states has been one of the region's greatest success stories. Following an initial postindependence bout of hyperinflation that saw consumer goods double and even triple annually, the prudent fiscal policies pursued by national governments severely curtailed price increases.
As a result, inflation was in line with Western standards in all three countries as early as 1998.
Most recently, the greatest threat to stable economic growth has been posed not by increasing but decreasing prices, as Lithuania officially registered deflation in both 2002 and 2003.
According to Raimondas Kuodis, monetary policy director at the Bank of Lithuania, there is little need for concern over inflation.
"In the long term, Lithuania's rate of inflation should converge with the targets set by the European Central Bank, which is about 2 percent per year. But until our economy converges with the EU, I believe there will be negligible inflation," he said.
The central banker also conjectured that Lithuania's deflation was largely the result of a weak dollar vis-à-vis the litas, which is pegged exclusively to the euro.
"It's very difficult to forecast short-term inflation rates, but we're currently expecting around 1.5 percent inflation in 2004," Kuodis said, explaining that the final numbers would depend on uncontrollable factors such as the price of crude oil.
In Estonia, which is predicting an inflation rate of 4 percent for 2004, central bankers are equally optimistic about future price fluctuations.
"The only prices that may go up significantly are for fuel or taxes," said Silver Vohu, spokesman for the Bank of Estonia.
Financial experts emphasize that the optimistic outlook on inflation is due largely to the fact that economic integration with the EU has been underway for several years, meaning that very little actually changed on May 1. With the Baltic states enjoying virtually free trade with the EU, there is little danger that prices have been artificially depressed previous to accession.
"This is a long-term process. In terms of trade, for instance, Lithuania will have to slightly change its agreements with countries like China, but the effect of this is quite minor," said Vidmantas Saferis, an economist with Hansabankas in Lithuania.
The stability provided by this gradual economic transformation into a full-fledged European economy, however, will provide consumers with more benefits than just tame price increases. In fact, analysts are almost unanimous in their prediction that wage increases would outstrip inflation by a significant margin in the coming decades.
This means that the real purchasing power for Baltic residents is set to rise.
"There's no doubt that wages will rise faster than inflation. We predict that wages will rise at about 7 or 8 percent per year, while inflation in the medium-term will be between 1 and 2.5 percent," said Saferis of the Lithuanian outlook.
"Of course, when wages increase, prices do as well, but wages are going to go up faster," concurred Vohu.
Analysts further point out that while the working population will most likely benefit from surging wages more than pensioners, whose income is determined by the means and largesse of the state, solid GDP growth should prompt governments to increase social benefits as well.
"People seem to be afraid of price increases, but they seem to be forgetting that their incomes are going to go up too," concluded Kuodis.
