Inflation unrelenting in Estonia

  • 2006-09-13
  • From wire reports
TALLINN - Estonian economists said the 5 percent annual increase in consumer prices in August, one of the worst indicators in the past five years, was worse than expected.

Hardo Pajula, an analyst with SEB Eesti Uhispank, said that growth in money circulation is the primary factor driving inflation. The M2 money supply has been steadily growing since the beginning of 2005 's faster than 30 percent annually. The growth in money supply is largely due to loans taken by commercial banks from their Swedish parent banks.
The impact of energy prices in Estonia has actually decreased compared with 2004, Pajula said.

Andres Saarniit, adviser at the Bank of Estonia's policy department, also admitted that annual inflation in August was faster than expected. "Inflationary growth reflects both the rapid growth of the economy and wages, as well as a rise in food prices, which are uncharacteristic for August," he observed. Inflation should fall below 5 percent again in September, Saarniit added.
Estonian government officials last week said that due to rampant inflation the introduction of the euro would likely be postponed until 2010.