Linas Jegelevičius for the BNN
After Lithuania grabbed last month the international spotlight for being an EU member state with the highest inflation in March, at 15.7 percent (in Estonia, it was 14.8 percent, in Latvia – 11.5 percent), according to the Eurostat, the EU’s statistical office, many hoped that inflation had reached the highest point.
Alas. With 16.6 percent in April, inflation hit a new all-time record in Lithuania, according to a provisional estimate released by the country’s statistics office on Thursday, May 5.
Month-on-month, consumer prices rose by 1.9 percent.
In terms of purchasing power, the euro in Lithuania now is nowhere it was in 2015, when the currency was introduced in the Baltic State. Back then, for the shiny one-euro coin, you could get one litre of milk produced locally and you would still have some cents left jiggling, enough to buy a small desert bar.
In 2015, the local bus fare in Klaipeda, Lithuania’s third-largest city, was 60-euro cents, now – one euro. The salaries and social benefits have risen over the time, of course, however, the recent spike of inflation – and the prices – caught many Lithuanians off guard.
«The prices are cosmic, monstrous, really insane. You just walk into a grocery store, look around and realise that you just feel pain choking your chest,» Vera Alejūnienė, an 80-year-old pensioner in Klaipeda, told BNN.
Read also: Industrial production output in Latvia up 6.3%
Vaidas Šimaitis, a well-to-do businessman in Šventoji, a settlement on the Baltic Sea, is much in a better position than Mrs Vera as, listed among the top-200 richest men of Lithuania, he is not compelled to pinch pennies. Yet the issue of prices and inflation is on his mind every day.
«At our small, 18-room hotel, the bills for heating last winter soared nearly thrice. Imagine paying nearly 6000 euros for heat monthly, when you generate little income in winter,» the businessman told BNN.
Although inflation is gnawing the euro in all 19 euro-zone countries – euro area annual inflation was 7.4 percent in March 2022, up from 5.9 percent in February 2022, according to Eurostat, yet it is Lithuania that outpaces other euro-zones states and seemingly will hold the highest EU-wide inflation for the second consecutive month, making Lithuanian analysts scratch heads for explanations.
SEB Lithuania economist Tadas Povilauskas says that fuel and heat have hardly contributed to inflation this month, but food prices rose at a record high rate of more than 10 percent.
Food prices, which rose twice as much as expected, will push the average annual inflation rate up to around 13-14 percent, according to Povilauskas.
«Obviously, our start-of-the-year forecasts of average annual inflation of between 11 and 13 percent are fading into oblivion,» he said. «Now we can already say that annual inflation in the country will be at least between 13 and 14 percent.»
The Liberal-Conservative Lithuanian government scrambles to chalk a new high in inflation up to spiking energy costs, which are the main factor driving inflation in Europe.
Sigitas Besagirskas, president at Vilnius Industry and Business Association (VIBA) uniting over 350 companies in the Vilnius region, says not only geopolitics and, specifically, «energy wars» are to be blamed for record-high inflation in Lithuania.
He insists that severed business ties with China have shaved off a couple of percentages from the country’s GDP, pushing up the prices too.
«Many our companies were depending on Chinese component and the substituting them has been costly,» the VIBA head emphasised to BNN.
Being in the euro-zone means that Lithuanians cannot use interest rates or the exchange rate to curb inflation, leaving only fiscal policy, he notes.
The Lithuanian Ministry of Social Welfare and Labour has announced of a five-percent increase of pensions, but some MPs, like Remigijus Žemaitaitis, representing opposition, slams the government hard. «Prime Minister, do not swing the boat, because you will end up being like a Russian ship,» he lambasted the government in his commentary for delfi.lt
Approached by BNN, the lawmaker he wasn’t choosy with words: «The Conservatives are as sick gamblers. The prime minister is muddling through budget amendments approved without the necessary institutional conclusions and they clearly are not in line with our Constitution. I see a lot of illogical decisions in the budget, and I am threatened for that. They whine that, if I appeal what is obvious unconstitutional amendments to the Constitutional Court, our people will purportedly not get increased indexed pensions – because of me! Well, change the Constitution. Pensions are much more important. Is Russia again to be blamed for all the blunders the government has made?»
Lithuania’s March – and now April – inflation are the highest figure since October 1996, Statistics Lithuania, the country’s chief statistician, says.
Main upward price pressures in Lithuania in March came from: housing & utilities (37.5% vs 37.8% in February), food & non-alcoholic beverages (17.1% vs 14.7%), transport (22.1% vs 16.9%), recreation & culture (9.9% vs 10.9%). On a monthly basis, consumer prices were up 2.4% in March, the most since January 2009, due to higher prices of fuel and lubricants, clothing, bread and cereals, milk and milk products, cheese, eggs, footwear, meat and meat products, oil and fat, the statistical office says.
However, Swedbank Lithuania analyst Nerijus Mačiulis believes that the murky picture of inflation will get a little bit lighter in the months to come.
«I believe inflation has already reached its peak and will start to decelerate in May or in the summer months. I’d be very surprised to see higher inflation in the summer months than it is now…It is very likely that the peak has already been reached in April.»
According to the economist, factors that are likely to push inflation down include the tightening of monetary policy by central banks around the globe, interest rate hikes, and slower growth in China and its impact on the rest of the world. All these factors are expected to dampen economic activity and, consequently, demand, he says.
Grappling with the «monstrous» prices, Alejūnienė, the pensioner, says she will have to rely much more on help of her son, while Šimaitis, the businessman, may shelve some projects.
BNN ANALYSES | Record-high inflation for the second consecutive month keeps Lithuanians jittery
