CPI inflation slowed down to 3.5% y/y in February from 4.0% y/y in January, data of the stat office showed on Thursday. Food prices growth eased to 1.9% y/y from 3.4% y/y previously, affected by the slower growth of international food prices. Meanwhile, transport price growth eased to 2.5% y/y in January due to lower fuel prices. Alcohol and tobacco prices continued to rise strongly by 11.3% y/y mostly due to the excise tax hike. The increase of housing prices remained solid at 5.6% y/y, boosted by the colder weather. Considering that a second wave of cold air should hit the Baltics in March, we believe that the housing price growth should remain tangible. In monthly terms, CPI fell by 0.2% due to lower food and clothing prices.
CB senior economist Paulius Morkunas commented that that average inflation will ease to about 2.6% in 2018, affected by the fadeout of the impact of Feb 2017 alcohol excise duty hike, significantly slower increase of oil prices and weaker increase of wages and other costs. In the meantime, Swedbank said that it expects the average inflation to come in at 3.3% this year. The stronger euro should put some downward pressure on inflation, whereas the still fast wage growth should boost services prices.