As broadly expected, Lithuanian inflation decelerated to 7.7% y/y (0.0% m/m) in March from 8.7% y/y (0.3% m/m) in February. The outcome was lower than our forecast of 8.2% y/y (0.5% m/m) mainly due to an overestimated impact of the rise in excise duties on tobacco products and increase in public transportation costs. The main drivers of the halt in rising consumer prices in March were declines in food prices (-0.2% m/m) and housing and transportation costs (0.4% m/m and 0.3% m/m, respectively).
In general, as we expected, the impact of the previous VAT hike and rise in some administrative prices was relatively short-lived without the so called "second round" effect. According to our new growth scenario, GDP contraction could reach an average of 10% y/y this year; especially taking into account expected fiscal tightening which is in the pipeline. Thus, we downgrade our average CPI forecast for the whole year to 5.3%.
