Lithuanian Inflation May Delay Euro Until 2017, Swedbank Says

Lithuania’s plan to adopt the euro in 2015 may have to be pushed back two years or more unless the government enacts measures to slow inflation, Swedbank AB said.

Inflation will accelerate to 3.3 percent this year and 3.4 percent in 2014 from the current 3.1 percent, which is already too high to qualify for the European Union’s common currency, the lender’s Vilnius-based unit said in a report on its website today.

“The government should start to apply concrete measures to ensure the stability of prices,” Nerijus Maciulis, Swedbank’s chief economist for Lithuania, said in the report. “Otherwise it may have to delay euro zone membership until 2017 or even later.”

Like neighbors Latvia and Estonia, Lithuania has one of the EU’s fastest growing economies. Euro adoption after 2015 will probably make it the last of the three Baltic countries to adopt the euro and reduce borrowing costs and facilitate trade with other EU members. Estonia adopted the euro in 2011 and Latvia plans to do so next year.

A decision by Lithuanian Prime Minister Algirdas Butkevicius’s government, which took office in December, to increase the minimum wage by 18 percent from Jan. 1 will boost inflation by half a percentage point this year, according to Swedbank. Rising prices of food, electricity, diesel fuel and tobacco will have a similar effect, the bank said in its report.

Gross domestic product would increase 4 percent this year and next, Swedbank said, cutting its previous forecast of 4.1 percent growth this year and 4.5 percent in 2014.

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