Estonia's inflation picks up pace again

  • 2008-05-14
  • Staff and wire reports
TALLINN - The consumer price index rose to an annual rate of 11.4 percent in April, a surprise turnaround after a slight dip in March and a bitter reminder that Estonia is not out of the inflationary woods just yet.
The result was even higher than the previous record of 11.3 percent set in February, which many economists had hoped would mark the end of the country's inflationary spiral.
Analysts expressed dismay at the result.
"In our estimate the [numbers] should have been significantly smaller, because all signs indicate that the price rise for food has slowed down and the prices of some goods have declined as well," said Maris Lauri of Hansabank Markets. "And there have been no major administrative price increases," she added.
Ruta Eier, an economist with SEB, said that, factoring in trends on world markets, food prices in Estonia should not have climbed as fast as they did in April.

She opined that there may have been a carry-over effect of cost-based inflation to other sectors 's i.e., the previous price increases finally impacted other sectors.
Both analysts said that the April jump in inflation was a surprise considering the rapid economic retreat taking place in Estonia.
Lauri said it could even serve as a warning to retailers. "Such a rapid price gain in a situation where consumers are cutting back spending indicates that retailers and service providers must significantly lower their prices in the near future if they wish to stay on the positive side" of sales, she said.
Eier agreed. "The curbing effect of reduced consumption on inflation hasn't been felt yet," she told the Baltic News Service.

The Bank of Estonia said the April inflation indicator was in line with forecasts since external pressure, particularly on global food prices, remains strong. In its spring forecast the bank said that prices increases in the service sector and a weaker real estate market will have an affect on the consumer basket as the year progresses.
After several years of stellar growth, Estonia's economy is slowing at a rapid pace, and may even end up posting GDP growth of 3 percent or less this year.
Speaking of the long term, Bank of Estonia Deputy Governor Marten Ross told a conference in Parnu said that the economy would "pass a phase of adaptation" in the coming years.

"Accession to the EU brought with itself several positive but one-off effects for the Estonian economy 's productivity improved, the labor market was opened, people's confidence as regards their future increased, and the financial market integrated well with that of Europe," Ross said. 
"It would be wrong to assume that these effects will last forever," he stressed.
He said that despite the downturn, the economy remains strong given the low level of government debt, strong fiscal policy and financial sector, and a narrowing foreign trade deficit.