The Lithuanian consumer price index (CPI) accelerated to 4.4% y/y in August, adding 0.5pp compared with the annual reading in July, Statistics Lithuania said on September 9.

The August reading extends the surge in the Lithuanian CPI that is part of a regional phenomenon across Central and Eastern Europe. Annual inflation growth of 4.4% is, however, one of the highest rates currently found in the region, even above Estonia, where CPI expanded 3.9% y/y in July. 

Rising wages are expected to remain a factor behind CPI growth through the remainder of the year, according to Swedbank. However, the bank predicts CPI growth peaked in August as the appreciating euro and stable commodity prices will slow down price growth in the goods segment. That trend is visible: goods became 3.8% more expensive on the year in August, while services prices expanded 6% y/y.

Inflation will come in at 3.5% in 2017, before easing to 3% and 2.5% in 2018 and 2019 respectively, Swedbank predicts.

Lithuanian prices have now been inflationary in every month since January 2016, supported by rising household incomes and higher oil prices. The tightened labour market and the return of EU-funded investment are pushing significant demand-led price pressures in the Baltic state. 

In annual terms, prices increased in all segments bar health care, where they dropped 0.2%. The headline CPI was driven by a 3.6% y/y increase in prices of food and non-alcoholic beverages, 5.5% annual price growth in the transport sector, and a 12.1% expansion in prices of alcohol and tobacco products that owed to increased excise duties. 

Prices in the utilities segment also contributed, growing 3.7% y/y in August. In monthly terms, CPI did not change.