As part of its efforts to analyse the economic situation in Lithuania, to conduct research and disseminate free market ideas, the Lithuanian Free Market Institute, together with the bank Hansabankas, has taken the initiative and presented to the Lithuanian prime minister an Anti-inflation plan.

 

The Anti-inflation Plan has been designed on the assumptions that inflation is the growth of money supply (in a broad sense) and not an increase in the general level of prices. In other words, a growth of the general price level is a consequence of inflation, rather than a cause.

 

Therefore, this Plan excludes measures of price control. In our opinion, such measures are likely to have only a temporary effect on price indices at best and would not resolve the problem of inflation as such.

 

The main drivers of inflation include: rapidly growing foreign cash inflows, in particular via bank loans; financing of the budget deficit via borrowing foreign funds; cash inflows from EU Structural Funds; and monetary transfers from emigrants.

 

The proposed measures were chosen according to their expected effects. In assessing the measures we took into consideration whether it was a direct or indirect anti-inflation measure, the rate and adequacy of their impact, as well as the ease of their implementation. The ease of implementation defines actions or changes that need to be taken or introduced to put into effect a given measure (e.g., if the implementation of a certain measure requires only a political or administrative decision, such a measure is defined as easy to implement, irrespective of possible political problems it might involve).