2021 in Lithuanian pockets: expensive food products and services, but not everyone will feel it

Prices will go up in the second half

Alexander Izgorodin, an economist at SME Finance, said inflation would be much higher this year than last year and predicted it should reach around 2-2.5 percent.

“The specific time when it will increase will be more towards the summer, in the fall, because it will depend directly on whether mass vaccination will be launched,” he said.

There are three reasons that will lead to a rise in inflation this year, he said.

He was the first to mention the cost of production aspect because, as he said, when the mass vaccination begins in Europe and around the world, the stock markets will react and world prices of raw materials will rise. The prices of oil, metals, certain foods will go up and the prices of final products will go up.

“The second moment will already be related to the growth of demand. Because this year we will see something like the inflationary spiral. This is a phenomenon caused by the recovery of demand in the economy.

As demand recovers, the economy recovers, positive messages emerge, and people decide to buy a particular product or service today, as that product or service may become more expensive tomorrow and will be a very important element in increasing sales. inflation this year and that will have the biggest impact on inflation. This will take place both in Lithuania and in the European Union, ”he explained.

The third thing, as Mr. Izgorodin said, will drive inflation in the economy is the increase of money in the economy.

This year, the European Commission’s economic stimulus plan, which was approved at the end of last year, will be implemented. Lithuania will receive money that will be parachuted into the Lithuanian economy. And that means that someone will receive that money and start spending it, and so will the increase in prices, “he said, adding that with the recovery of the economy we will see an increase in the prices of services, but it is still difficult to say exactly how much it will cost today.

The economist urged not to forget the rise in wages, which will continue to rise this year.

“You can predict that the situation in individual sectors is good enough, say industry, IT, then those wages will continue to rise without any interruption, so not everyone can feel inflation.

In total, 2-2.5 percent. “Annual inflation is certainly not a catastrophe, since the European Central Bank itself considers that it is at a completely normal level of inflation,” he said.

“Such a rise in inflation would be even very healthy, because it leads to economic growth. Deflation would be a much bigger problem for Lithuania. It could really kill our economy. The rise in inflation is better than two horrors,” said the economist.

Purchasing power will increase, but not for everyone

Kotryna Tamoševičienė, Head of the Macroeconomics and Forecasts Division at the Bank of Lithuania, predicted that economic growth in 2021, which had slowed due to the coronavirus pandemic, would slow down economic growth in 2021. Headline inflation should not be high, around 1%.

“The services sector has been particularly hard hit by the pandemic, so service prices are likely to rise more slowly this year as a whole.

Of course, last year we saw that in some cases, such as dentists, the prices of health services even went up significantly. This was due to the increased costs of providing these services due to the pandemic and the accumulated demand during the quarantine.

So again this year, we are likely to see significant differences between the prices of services, the demand for which will increase significantly with the release of restrictions, and the prices of services whose demand will be dampened for a long time, such as tourism services.

Unlike domestic prices, commodity prices respond much more quickly to changes in the world economy. As a result, energy prices fell sharply and extremely steeply last year, reducing headline inflation in many countries, including Lithuania. Therefore, it is not worth expecting a significant decrease in the prices of energy raw materials in the coming years, which means that they will not reduce inflation as much as they did last year ”, explained the LB specialist.

When asked if rising wages this year could “eat away” rising prices and inflation, Ms Tamoševičienė said that although wages in Lithuania rose sharply last year despite the challenges posed by the pandemic , are likely to increase more slowly this year. not less than 2 percent. and it will exceed the average price growth rate and increase the purchasing power of the consumer.

“It is true that in terms of different professions, we see inequalities: the wages of some of them (for example, restaurant workers) were seriously affected by the pandemic, while the impact of the wages of others (for example, the specialists in information technology) was minimal. Furthermore, the impact of price increases on the population is individual and depends on the goods and services that each consumer chooses, “he said.

Expensive services and possible food products.

Indrė Genytė-Pikčienė, economist at INVL Asset Management, said inflation could be caused in two ways: by cost pressures, for example if companies start to increase wages, which is also reflected in product prices. , or due to an increase in demand.

“This year will be the year of rehabilitation after the COVID-19 pandemic. Generally, this is not a quick process as it largely depends on how quickly the countries and Lithuania are vaccinated, how they manage to get back at a normal rate, how the economic processes will be carried out.

It can be seen that in the first half of the year the economic rhythms will continue to be quite slow due to vaccination, so it is not worth waiting for a jump in demand ”, he predicted.

True, in the second half of the year, as A. Izgorodin said, according to the economist, the situation will fundamentally change.

“Given that the most quarantined activities represent a small part of our economy, and that our economy must recover successfully, we will see a faster rebound in consumption and, consequently, more vigorous inflationary processes in the second half of the year,” he said .

According to I. Genytė Pikčienė, inflation should rise to 2% this year.

“It just came to our attention then.

Services appear to be increasing faster than average, as wage growth is already being timed by already increased monthly wage increases and wage increases in the public sector, as inflation includes public services: education and healthcare. services will continue to increase considerably. Inflation in services is expected to rise faster than average, “he said.

The economist also spoke about the possible rise in food prices.

“Looking at food price trends, there are also forecasts that food prices should go up this year.

Last year, the price rose quite fast, this year the reasons for growth are also different, and the harvest is more modest, etc. Of course, it is difficult to predict food prices, they may not be more expensive than average, it is not clear, ”said I. Genytė Pikčienė.