Jekaterina Rojaka,
Chief economist, DnB NORD.

Lithuanian consumer prices declined by 0.2% m/m in July, down from -0.1% in June. The drop in prices was mainly in line with market expectations and DnB NORD's estimate (-0.1%). Admittedly, the annual rate eased down from 4.8% to 4.6% y/y.

The main cause of the decline in the month-on-month rate was an expected (seasonal) drop in the prices of food, and a pronounced drop in the prices of clothing and footwear.

However, latest producer prices figures in Lithuania issued last week proved that cost pressures are still rising, especially on energy and food products. On the other hand, forward-looking surveys of manufacturers’ pricing intentions suggest that output price inflation should rise only marginally. Moreover, falling oil prices are expected to fetch down prices further.

Assessment: We expect consumer prices to ease somewhat in nearest months, before accelerating in autumn after the heating season begins. However, higher base effect will reduce an increase in prices. Annual inflation is forecasted to reach 4% in the end of 2011, while it will heavily depend on energy price developments.