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. Last Updated: 07/27/2016

Utility Fee Hikes Fuel Inflation in Lithuania

VILNIUS, Lithuania -- A sharp rise in Lithuanian January consumer prices was fueled by a one-off liberalization in state-regulated utilities with the underlying data suggesting the economy is still weak, analysts said Tuesday.

Statistics department figures showed the consumer price index rose 1.5 percent month-on-month in January - the sharpest monthly rise since January 1997 - to put the annual inflation rate at 0.8 percent.

In December, the index rose 0.3 percent both month-on-month and year-on-year. In January last year prices were up 1 percent on a monthly basis and increased 2.4 percent year-on-year.

"The main reason behind the inflation spike were administrative decisions, which do not say much about the economy," said Mikael Johansson, an economist with Swedish SEB.

Department data showed household, water, electricity and gas prices increased by 9.3 percent month-on-month.

However food and non-alcoholic beverages - which hold a 37.66 percent weighting on the index - rose only 0.1 percent.

"The small increase in foodstuffs and a decline in footwear and clothing sectors show domestic demand is still weak and the economy is still struggling," Johansson added.

Lithuanian consumer prices fell off sharply following the August 1998 turmoil in Russia as domestic producers lost their major export partner and flocked into the local market creating oversupply especially in the food and dairy industries.

"I think this rate will be the biggest month-on-month increase for the whole year, for which we expect [average annual inflation] around 3.5 percent for the full year," said Mika Erkkila, an analyst at Merita Securities.

The 1999 average annual inflation rate was 0.8 percent.

The statistics department's official December 2000 year-on-year inflation forecast is 3 percent, following a hike in telephone tariffs this month and a rise in tobacco excise duties expected later in the year.

The department did not provide a forecast for average annual inflation for 2000. But the country's 2000 budget was based on expectations of a 2.7 percent average annual inflation by the Economy Ministry.

Lithuania said it will meet all European Union membership requirements by the start of 2004 and wrap up negotiations at least a year before that.

The Baltic state's European Integration Commission, chaired by Prime Minister Andrius Kubilius, has approved major elements of a draft of the statement it will give the EU at the start of accession talks, the government press office said.