Food and drink prices in Lithuania are already above the EU average

In Lithuania, the very high inflation in 2022 is due not only to the rapid increase in energy commodities but also to a significant increase in food and beverage prices. In Lithuania, food and beverage prices increased by 25.9% in 2022, more than twice as fast as the average in the European Union (EU), where the growth rate was 11.9%. Eurostat estimates that the price level of food and beverages in Lithuania had already risen to 99% of the EU average in 2022, compared to 88% of the average in 2021. “According to Žygimantas Mauricas, Chief Economist at Luminor Bank, preliminary estimates suggest that the price level of food and beverages in Lithuania is already above the EU average.

This year, the prices of energy commodities (fuel, heating and electricity) have fallen, but food and beverage prices are still rising. Thus, food and beverage price increases have been the main driver of inflation in Lithuania this year. As of May, food and beverage prices were 18.2% higher than a year earlier, pushing up headline inflation in Lithuania by 4.2%. Over two years, food and beverage prices have risen by as much as 46.8% in Lithuania, almost twice as fast as the EU average of 26.5%. Only Hungary saw faster food price increases than Lithuania, while neighbouring Latvia and Poland saw much more modest increases than Lithuania, at 39.4% and 34.6%, respectively.

“The exceptionally fast food price growth in Lithuania is not easily explained by fundamental factors. First of all, food prices for the final consumer have risen faster than prices for food producers and food importers. In addition, food prices for the final consumer in Lithuania have continued to rise as energy raw materials and agricultural input prices started to fall this year. For example, while the fall in milk prices has reduced butter prices in Germany and Poland by 29% and 12%, respectively, this year, in Lithuania, butter prices have fallen by a symbolic 6%. We can only hope that competition will do its job and that we will see a more significant fall in food and beverage prices in Lithuania in the near future. If we do not see a fall, Lithuania will be among the most expensive EU countries in terms of food and drink prices. Interestingly, Lithuania already has higher price levels than Scandinavian countries for certain food categories. For example, according to Eurostat data, in 2022, the price level of dairy products in Lithuania was 19% higher than the EU average and exceeded the price level in Finland and Sweden,” says Ž. Mauricas.

However, Luminor’s Chief Economist is convinced that the powerful seasonality mechanism will kick in during the summer and food prices will start to decline.

“Price inertia may persist for some time, but competition should eventually take its toll, especially as Lithuania is constantly feeling the Polish market at its back. Seasonality should also keep food prices down in the short term, as food prices are usually lower in July-October than in other months of the year. Consumers should also play an important role in looking for cheaper alternatives, especially as worries about a possible coming recession are increasing so that the so-called “greed” inflation should come to an end. So we can reasonably expect food prices to fall in July-October, and it would not be surprising if the food price index drops by double digits by the end of next year,” said Mauricas.

Despite the prolonged increase in food prices, he is critical of both the possibilities of state intervention in the primary agricultural production market and the tools used to regulate prices to the final consumer. “This would further disturb the market. The only tool that could help everyone is the promotion of competition”, says Luminor’s Chief Economist.