Estonia turns the corner

TALLINN -- It's here at last. After several strong hints that a reduction in Estonia's high inflation rate may be imminent, in March it finally arrived. It is the first clear evidence that the overheating economy may finally be starting to cool off and settle at more sustainable levels of growth and inflation.

According to Statistics Estonia, the percentage change of the consumer price index in March 2008 compared to March 2007 was 10.9%, down from February's 10-year high of 11.3%.

Though many prices re continuing to rise, it could be that the worst is over for Estonian consumers.

In March 2008 compared to March of the previous year, the prices of goods changed by 10.1%, of which the prices of food rose by 14.5% and the prices of manufactured goods by 6.6%. The prices of services increased 12.6%. Regulated prices of goods and services changed by 19.8% and non-regulated prices by 8.5%.

The index was mainly influenced by the price increase of food, as well as by the increase in the prices of heat energy, heating materials and motor fuel. Dairy-, cereal- and meat products accounted for three quarters of the price increase of food.

On average, the prices of goods and services in March were 0.8% higher than in February.

The consumer price index was mainly influenced by the increase in the prices of motor fuel, bread products and fresh vegetables (4.9%, 5.0% and 8.0%, respectively). Electricity was 2.4% cheaper compared to the previous month.

"Inflation remains a key challenge for the Estonian and other Baltic states economies. Another spike in Estonian CPI may be expected in June due higher electricity prices, and in July because of a further rise in excise duties for tobacco and alcohol products. We do not expect a drastic acceleration in consumer price inflation, but still a roughly stable growth of around 10 -11% y/y may be expected almost until late Autumn this year," said Violeta Klyviene, senior Baltic analyst with Danske Markets.

 
After the good news from Tallinn, attention will now refocus on Latvia and Lithuania to see when they can match Estonia's reversing trend.