Food forcing inflation surge

TALLINN - The consumer price index in Estonia increased 5.4 percent in April 2011, compared to April of the previous year, and 0.7 percent compared to March 2011, which, according to Orsolya Soosaar, an economist at the national Bank of Estonia (Eesti Pank), is based on the rapid increase in the price of food, reports news agency LETA. “The price increase of food continues to be the main inflation driver. This partly reflects the pass-through of the commodity price hike in the global market, but also possible problems with the functioning of the market. Compared to March, the price of edible oil and sugar increased by more than 15 percent,” wrote the bank specialist.

The expert also notes the special effect of one-off commodity price increases on the economy. “Looking ahead, it is important that the one-off commodity price increases would not raise inflation expectations and pass through to wages. Wages should not grow faster than productivity, since that would damage the competitiveness of Estonia’s enterprises. Fourteen percent of the labor force (that is, those who wish to work) is unemployed and general wage growth would impede the resumption of employment,” Soosaar reports.

In order to reduce the second-round effects of inflation and to ensure medium-term price stability, the Governing Council of the European Central Bank, which also includes the Governor of Eesti Pank, increased interest rates by 0.25 percent in April, the statement says.

According to Statistics Estonia, goods were 6.9 percent and services 2.6 percent more expensive in Estonia compared to April 2010. Regulated prices of goods and services have risen by 5.4 percent and non-regulated prices also by 5.4 percent compared to April of the previous year.