Macroeconomic Forecast Lithuania

In recent years, Lithuania has employed monetary policy successfully to realise a substantial reduction in inflation, which reached in excess of 70% in 1994. However, in 2002 and 2003, sustained disinflation gave way to deflation. Given the economic risks which attend a situation of falling prices, latest figures confirming a return to year-on-year (y-o-y) inflation in Q104 should be viewed in a positive light. In March, prices for consumer goods rose by 0.6% y-o-y, while price indexes of service charges showed an increase of 0.1% y-o-y. Over the forecast period, we anticipate that EU accession will create demand-pull inflationary pressures, as the process of income convergence continues. We currently expect end-year inflation to amount to 1.8%.

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