TALLINN-VILNIUS - Consumer prices continued their upward march in Estonia and Lithuania in the month of October thanks to higher food prices.
In Estonia annual inflation reached 8.5 percent, the Statistics Office reported, the highest result in 10 years. Prices for goods were up 7 percent year-on-year, and those for food 10.1 percent from October 2006 to October 2007. Services, meanwhile, climbed 11.3 percent.
On a monthly basis the consumer price index increased 1 percent in October, with most of the growth resulting from a hike in the prices of dairy, meat and flour products, the office reported.
Maris Lauri, an analyst at Hansabank Markets in Estonia, told the Baltic News Service that the price increase had been expected. "Food prices have been going up relatively fast for quite some time already, and it was known that the prices of very many foodstuffs were raised considerably in October," she said.
SEB Eesti Uhispank's Hardo Pahula expressed surprise, saying he had expected a slowdown in inflation over the month. "Nevertheless, I still maintain that a fast contraction of the mass of cash in circulation will bring inflation under control quicker than is generally believed," Pajula added.
Lauri said that the annual inflationary rate would slightly slow down in November and December primarily due to the considerably higher base of comparison, as there was a relatively fast hike in gasoline prices in November 2006.
Hansabank Markets forecasts this year's inflation rate at about 6.3 percent, while SEB Uhispank's forecast is 6.5 percent.
Bank of Estonia Vice Governor Toomas Sutt said on Nov. 9 that inflation would remain high in the near future, though it should gradually fall to about 4 percent in 2009.
The present higher than average inflation, Sutt said, reflects a price rise in services, above all in the previous year and in the first half of this year. Labor costs take a large share in the price of services. As a result, one of the main drivers of inflation is wage increases outpacing gains in productivity, Sutt said.
He said that there were also some positive aspects in the 8.5 percent annual inflation figure for October.
Not considering higher food prices, the prices of other goods and services rose only by 0.3 percent in October, and the last change in the construction index showed a slow-down in the rise of wages in the building sector, Sutt said.
Looking ahead, rising food prices on world markets, as well as rises in excise taxes scheduled in January and July, will keep inflation moving at a brisk pace. The consumer price index will only start falling in the second half of next year, the central bank said.
Sutt also said that Estonian companies' competitiveness on the foreign market was still good and their profitability high.
But he warned that a rise in wages ahead of productivity could no longer last; otherwise, companies will see their competitiveness fall, and a loss of market share would follow.
In Lithuania, October inflation was a staggering 1.5 percent, the largest since May 2004 when the Baltic state joined the European Union, the Statistics Department reported. Annual inflation reached 7.6 percent.
The department attributed the monthly rise to a 3.7 percent increase in the prices of foodstuffs and soft drinks, a 2.7 percent growth in clothes and footwear prices, 2.6 percent rise in the prices of accommodation, water, electricity, gas and other fuel group products, and a 1 percent increase in the prices of hotels, cafes and restaurant services.
Vegetable prices increased 7.6 percent over the month, while bread was up 6.6 percent and milk and dairy products 6.4 percent.
The rise in the prices of accommodation, water, electricity, gas and other fuel group articles was largely prompted by a 9.9 percent surge in the price of centralized heating and a 4 percent increase in rental fees.