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2021.12.02 10:00

‘Monstrous’ inflation in Lithuania threatens savings and wage gains

Irma Janauskaitė, Jūratė Anilionytė, Vesta Tizenhauzienė, LRT TV, LRT.lt2021.12.02 10:00

Inflation not seen since before the 2009 crash is raising alarm among Lithuanian consumers and economists.

Lithuania reported 9.3-percent annual inflation in November – according to the Eurostat, the highest rate in the euro zone, where it averaged 4.9 percent.

Read more: Lithuanian regulator sets higher gas and electricity rates for households

It is likely, that Lithuania will end the year with double-digit annual inflation.

“Inflation this monstrous was only seen before the big recession of 2009, when Lithuania's economy was in overheat and we had real estate, consumer, and credit bubbles,” Indrė Genytė-Pikčienė, an economist with INVL Asset Management, tells LRT TV.

While energy and fuel are the main drivers of inflation, price increases are passed on to other goods, including food.

“Milk is getting 30-percent more expensive, other products are also keeping up,” says Petras Čepkauskas, of the price comparison website Pricer.lt. “Effectively prices of all food products are going up.”

Adding up to the pressure is the declining exchange rate of the euro.

“The euro has recently lost 8-9 percent of its value in relation to the dollar,” says finance analyst Marius Dubnikovas. “And raw foodstuffs are usually purchased in dollars. This means that not only raw inputs are getting more expensive, but even the exchange rate works against us.”

Read more: Lithuania posts 11-percent average wage growth

Although wages in Lithuania have also been growing, many workers may see their gains eaten away by inflation.

“The argument that salaries and incomes have been outpacing inflation does not always stand,” according to Dubnikovas. “Some people have not even seen any changes to their wages – and 10-percent inflation means that their purchasing power is melting particularly fast.”

Čepkauskas agrees. “What will Lithuanian consumers do? We'll see. Either they'll be buying cheaper products or, unless borders close again, will start going on shopping tours to Poland,” he says.

Better-off Lithuanians are also concerned about inflation, which will eat away part of their savings.

“Lithuanian residents have about 20 billion euros in their current accounts,” says Dubnikovas. “And with 10-percent inflation, this means that we'll lose 2 billion euros of purchasing power in one year, which is a lot.”

Economists expect inflation in Lithuania to stay high until at least mid-2022. It will abate later, unless the economy is disrupted once again by another Covid-19 wave.

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