- The Lithuanian statistical office has released consumer price inflation (CPI) figures for May. As expected inflation decelerated further to 5.2% y/y (minus 0.2% m/m) from 6.3% y/y (0.0 m/m) in April.
- Due to decline in electricity and gas prices, we expected a more pronounced decline in monthly inflation in the coming months. There is some upside risk related to the global oil prices rise, but we expect the massive slowdown will be the major factor behind the downward trend of CPI this year.
Details
The Lithuanian statistical office released CPI figures today. As expected CPI decelerated to 5.2 % y/y (minus 0.2% m/m) from 6.3% y/y (minus 0.1 m/m) in April. The decline in monthly CPI mainly stems from the drop in food prices (minus 0.6% m/m) and housing cost (minus 0.7% m/m). Increase in transportation cost by 1.4% m/m, due to a rise in global oil prices, helped prevent CPI from suffering more significant deceleration in growth
Assessment and outlook
Looking forward we expect a continuation of the downward trend in consumer prices. Administrative prices, mainly related to housing cost, are expected to decelerate further on the already agreed cut in gas prices of 17 % (on average) and decline in electricity tariff. The latter decisions are set to come into force in July – thus, we expect a more significant drop in monthly inflation in the summer months as well.
Energy price shocks in 2010 would lead acceleration in CPI again. Electricity price increases are likely to be more moderate than previously expected, but could still be sufficient to up to 60-70%. Furthermore, we expect that average inflation in 2009E will decelerate to 4.3% y/y. and to 3.8% y/y in 2010E.
