Flash comment: Lithuania

Economic commentary by Economic Research Department January 9, 2013

CPI declined by 0.1% in December, a third consecutive decline

Annual growth of producer prices, %
30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 2007 2008 PPI 2009 2010 2011 2012 PPI ex. oil products
Source: Statistics Lithuania

Consumer prices declined by 0.1% in December, after contracting by 0.2% in October and November. Average annual inflation at the end of last year dropped to 3.1%, slightly above our forecast. Due to favorable global trends more expensive euro and cheaper oil the main driver of deflation were cheaper fuels and heating energy. Slightly cheaper clothes and footwear have also contributed to deflation. Prices of food products, especially vegetables, healthcare and leisure services were higher in December than a month ago.

Outlook
Global conditions will remain favourable we expect slightly lower average price of oil this year, but domestic factors will push inflation upwards. Increasing price of electricity for households and business, higher excise duties for diesel fuel, and higher minimum monthly wage will contribute to inflation this year. Average annual inflation is expected to bottom out in the coming months and stay slightly above 3.0% for the rest of this year. We will update our inflation forecast in the upcoming Swedbank Economic Outlook and will provide our projections about Lithuanias accession to Economic Monetary Union, which is likely to be postponed at least a couple of years.

Annual, monthly and average annual change in prices, %

6% 4% 2% 0% -2% 2010 2011 Monthly growth (rs) Average annual (ls) 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% -0.25% -0.50% 2012 Annual growth (ls )
Source: Statistics Lithuania

Inflation expectations, points

60 40 20 0 -20 2010 2011 Construction Retail Consumers 2012 Services Industry
Source: Statistics Lithuania

Nerijus Maiulis Chief Economist + 370 5 258 2237 nerijus.maciulis@swedbank.lt

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Cecilia Hermansson, +46 8 5859 7720

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