Annual inflation in Lithuania in April declined to 13.3 percent, according to an estimate published by Eurostat. And while the European Central Bank is expected to further raise interest rates to fight inflation, many people in Lithuania painfully feel the effect the policy is causing.
In the Vilnius warehouse of Maisto Bankas (Food Bank), volunteers in red jackets and aprons sort fruit and vegetables and fill bags with food for people in need.
“One out of five people are at risk of poverty in Lithuania,” says Simonas Gurevičius, head of Maisto Bankas. “One out of nine people, around 12 percent, say they cannot afford quality food every day.”
He points to the products on the shelves of the cooling chamber: “With rising food prices, dairy products, meat, and so on became quite expensive. And there are more and more people who cannot afford to buy it. At the same time, there is a lot of food that would be wasted if it wasn’t for the Food Bank.”
In Lithuania, Maisto Bankas assists an average of around 180,000 people per month. That is 20,000 more than last year, says Gurevičius. Demand has increased since the annual inflation rate climbed to more than 20 percent in the wake of Russia’s attack on Ukraine.
Annual inflation in Lithuania is still more than double the eurozone average. But according to Nerijus Mačiulis, chief economist at Swedbank in Lithuania, the annual rate does not adequately reflect current developments in the country.
“I think it’s very clear that we are on a path of disinflation,” he said. “If you dig a little bit deeper, you see stronger trends here where prices of goods are even falling. We not only see declining inflation, but we see declining prices. For example, prices of dairy products and energy products have actually declined quite significantly compared to the peak that we saw in autumn 2022.”
According to Mačiulis, however, “the prices of services are still increasing quite rapidly”. Rising wages also create a risk that inflation could be stickier than previously expected.
Since the ECB has been pursuing a policy of raising interest rates to fight inflation, there are new concerns for many in Lithuania besides high prices for energy and food. “Interest rates that most people pay on their housing have increased dramatically,” Mačiulis pointed out.
“Baltic countries are somewhat different from the Euro area. Most of the mortgages are linked to interbank interest rates (Euribor), usually for six months. Whenever the ECB is increasing interest rates, this is almost immediately reflected on the six-month Euribor, and it affects the monthly payment that mortgage owners have to pay to the bank,” the economist explained.
MP Vytautas Gapšys of the opposition Labour Party notes that there are more than 200,000 families or persons in Lithuania who have taken out mortgages.
“And they have to pay several hundred euros extra a month or even more. That means that a lot of money will be spent to keep their houses or apartments,” he said, adding that the government should consider giving tax relief to people with increased mortgage rates.
According to the Labour Party’s proposal, the funding should be provided by a part of the income of the windfall tax that the government plans to impose on the banking sector. With the government rejecting the proposal, the Labour Party announced it would collect signatures to increase pressure on the conservative-liberal coalition.
“We want to show that it’s not only one of the oppositions’ ideas, but it’s also supported by the people,” Gapšys said.
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The Food Bank is also feeling the effects of the increase in interest rates. According to its head Gurevičius, many families with mortgages are finding it increasingly difficult to afford food. And even though the Bank of Lithuania recently published a positive outlook concerning the purchasing power of Lithuanians, he pleads to remember those who are not adequately reflected in the official statistics.
“There is one group of people who get stable incomes and have good jobs,” he said. “Their incomes are getting higher at a greater speed than the rate of inflation. In Lithuania, the average is okay. But if you take a closer look at the most vulnerable people, and this is one-fifth of the population, the situation is not getting better.”
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