CPI inflation slows down to 2.7% y/y in Lithuania

CPI inflation slowed down to 2.7% y/y in March from 3.5% y/y in February as largely expected following the release of preliminary HICP inflation data more than a week ago which showed that HICP inflation slowed down to 2.5% y/y in March. The deceleration was largely driven by the wearing off of the impact of higher excise duties which were introduced in March 2017 with alcohol and tobacco prices easing their growth to 3.4% y/y from 11.3% y/y in February. Apart from that, prices of fuels had the largest contribution to price growth in March followed by restaurant prices and milk, cheese and eggs. On the opposite side, pharmaceutical products continue to have a negative contribution to price growth. On monthly basis, consumer prices rose by 0.4% m/m following 0.2% m/m decline in February.

All in all, consumer inflation will likely remain below the 3% y/y growth mark in the coming months as a result of lack of new excise duty hikes although growth will still be boosted by higher labor costs. On the other hand, the appreciation of the EUR in recent months will make imports cheaper which will keep consumer price growth close to the current level of growth. We expect lower inflation to stimulate private consumption although the poor labor market conditions are limiting the upside potential, in our view.

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