Estonia turns the corner

TALLINN -- It's here at last. After severalstrong 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 theoverheating economy may finally be starting to cool off and settle at moresustainable levels of growth and inflation.

Accordingto Statistics Estonia, the percentage change of the consumer price index inMarch 2008 compared to March 2007 was 10.9%, down from February's 10-year highof 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 theprevious year, the prices of goods changed by 10.1%, of which the prices offood rose by 14.5% and the prices of manufactured goods by 6.6%. The prices ofservices increased 12.6%. Regulated prices of goods and services changed by19.8% and non-regulated prices by 8.5%.

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

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

The consumer price index was mainlyinfluenced by the increase in the prices of motor fuel, bread products andfresh 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 theEstonian and other Baltic states economies. Another spike in Estonian CPI maybe expected in June due higher electricity prices, and in July because of afurther rise in excise duties for tobacco and alcohol products. We do notexpect a drastic acceleration in consumer price inflation, but still a roughlystable growth of around 10 -11% y/y may be expected almost until late Autumnthis 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 matchEstonia's reversing trend.