Economists warn of the biggest impact of rising prices: more careful planning of purchases and greater savings on housing

Prices will go up

Eglė Coppa, Head of the Macroeconomics and Forecasts Division of the Bank of Lithuania, spoke about a little over 10% last year. Population wages were said to have risen very differently for different population groups.

As explained, in the first months of the pandemic, 10 percent. Workers’ wages at the minimum wage (DU) fell in May. returned to baseline and was unchanged for the next part of the year, but 10 percent. the highest earning depleted uranium grew much faster and in 2020, it eventually exceeded pre-pandemic levels.

According to her, this uneven distribution of depleted uranium growth was due to several main reasons, one of which was that low-income workers were more likely to work in limited activities due to the pandemic, while high-income workers had more likely to continue working. remotely and receive full DU.

“There has also been an increase in the number of employees who have worked fewer hours or received MMA-sized allowances due to operating restrictions.

Low-wage workers were also affected by depleted uranium in 2021. 5.8 percent (from EUR 607 to EUR 642) has increased the monthly minimum wage, while in 2020 it increased by 9.4 percent. (from 555 to 607 Eur) ”, he named, and said that all this led to a slight increase in income inequality in Lithuania during the year. As assured, the difference between 10 percent. those who earn more and 10 percent. the lowest income increased from 4.2 (2019) to 4.3 (2020) times.

According to LAC projections, significant changes will be related to inflation this year.

As explained, it will be higher than last year, and the increase in prices will be significantly influenced by the return of oil prices to the pre-pandemic level, which, respectively, will determine the prices of intensive products in Oil: Fuel will be said to be more expensive this year.

“The prices of food and services will also go up, but less than last year.

January-April of this year. Food prices were, on average, even lower than in the same period of the previous year. We were able to buy cheaper eg vegetables, meat and dairy products. However, in the future, food prices may be more affected by the winds in the world market for food products, which have driven up the prices of food products. Well, the evolution of the prices of services will be affected both by the increase in salaries and by the security requirements, which increase costs, and the accumulated demand during the period of activity restriction ”, predicted E. Coppa , LB Bankas specialist.

According to the 2021 March. According to the forecasts published by the Bank of Lithuania in 2021, the average annual inflation in 2021. will increase by 1.6% and the growth of wages is expected to be around 6.3%.

“Even if it accelerates (price growth), prices shouldn’t grow faster than wages,” Coppa said.

You may need to choose your products and services more carefully

Indrė Genytė-Pikčienė, chief economist at INVL Asset Management, said rising inflation could bring challenges.

“As you know, the groups most vulnerable to inflation were retirees and those with the lowest income.

In fact, pensions, MMA have been increasing quite fast, but the change in inflation compared to last year or the previous year is such that this year the inflation rate will be higher.

As you know, part of the growth in wages is eaten up by inflation, and when it is small, the highest growth in income goes to the person, so purchasing power grows faster. This year, despite increases in MMA or pensions, inflation will take some of the growth and faster price growth will leave less money for the population.

This trend is not favorable and will reduce wage growth, but it will be higher than inflation, for sure. However, a more pronounced acceleration of inflation should be expected in the second half of the year, when the quarantines end, ”commented I. Genytė-Pikčienė.

The economist compared that last year the MMA increased by about one tenth, so the increase in welfare was felt more strongly and a slightly different situation can be expected this year.

“You may not need to tighten your belts very much, but apparently you may need to choose your goods or services more carefully,” he warned.

It will be more difficult to buy a home

The economist Alexander Izgorodin was asked if it was possible that those who earned less, more, and would feel the rise in prices, would answer that he was only partially thinking.

“It may be. This year, there are sufficient preconditions not only for rising inflation, but also for wage growth to be strong enough.

This is not only due to the fact that our economy currently looks good among the countries of the European Union, but also to certain problematic nuances of the labor market, which are not good for employers, but good for employees, ”he said. but he added that it will not impoverish since wage growth will be faster.

The economist also spoke about the affordability of real estate (RE) for those who earn less.

“I see some problems here.

First, our people have a lot of free money, as LB’s deposit statistics show, and another problem is that people see the rate of inflation accelerating and believe that real estate prices will go even higher in the future due to inflation and now they are buying houses and this is driving up prices.

I agree that as far as the lowest earners are concerned, they can really be disconnected from buying flats and they will have to agree that they will have to rent those flats for a while until they make that initial contribution. it won’t be very easy to accumulate, prices are going up.

“This is a sector where I can already see some signs of overheating,” he concluded.

You will need to plan

Sigismund Mauricas, an economist at Luminor Bank, said he believed that despite all the price increases, the purchasing power of the population would increase this year, but, as he emphasized, there would be certain categories of goods whose affordability would decrease.

“Let’s not forget that we have an economic recovery of the letter K. If people work in restaurants or hotels, their income may grow very slightly, because there will be nothing to increase it,” he said, explaining that some people will feel the rise in prices and others, although real incomes for the majority will increase, as they are still dissatisfied because residents tend to focus on things that are becoming more expensive rather than those that are falling in price.

“I think that this year the prices of services and food can be very expensive and can be more difficult to pay. <...>

Those who earn less will need to plan, plan their shopping cart, think about what they are buying, but the MMA will also increase ”, concluded the economist.