Finance Ministry not worried about rising inflation

TALLINN - Estonian inflation accelerated in April to the fastest pace in 14 months, with prices up by 2.9 percent from year earlier numbers, reports Bloomberg. The increase represents the biggest increase since February 2009, coming off a 1.7 percent rise in March, the Tallinn-based statistics office showed on its Web site. Against the previous month, prices in April rose 0.5 percent. Estonia aims to be the third east European nation to join the euro region, after Slovenia and Slovakia. The European Commission and the European Central Bank are expected to report as The Baltic Times goes to press on whether Estonia meets the currency bloc’s fiscal and inflation targets.

The inflation figure “will increase interest towards the European Commission report, but I would still be confident Estonia will be considered as meeting euro entry terms,” said Helsinki-based Nordea analyst Annika Lindblad. Entering the euro region “is not a done deal” and the European Commission “will very carefully evaluate the Estonian budget and inflation figures,” Economic and Monetary Affairs Commissioner Olli Rehn said on May 5.
Consumer prices, harmonized to European Union standards, may rise an average 1.3 percent this year and 2 percent in 2011, compared with a 0.2 percent increase last year, the commission said last week. Food prices rose 1.2 percent in April from March, driven by an 8.8 percent increase in fresh vegetable prices. Transport prices grew 1.1 percent on the month, the statistics office said.

Rising commodities prices “are a clear risk for inflation,” said Violeta Klyviene, senior Baltic analyst at Danske Bank in Vilnius. “There is a certain risk on fulfilling the Maastricht inflation criterion from the sustainability aspect.” The March inflation jump was a “one-off” and price increases will be “much more moderate ahead,” the Finance Ministry said on April 8, citing weak domestic demand. The 12-month average inflation rate, the EU target rate for price stability, was a negative 0.7 percent in March, “clearly below the reference value,” the ministry said then. Euro applicants need to keep inflation within 1.5 percentage points of the 12-month average inflation rate of the three EU nations with the “best” results for annual price growth, according to targets set out in the Maastricht Treaty.

The 2.9 percent April consumer price increase was mostly “imported and will affect Estonia similarly to the countries in the euro area,” reported Swedbank Estonia, reported Aripaev Online. “What happened in April - the price increase - originated from abroad, which means that we imported price growth,” commented analyst Annika Paabut. She added that it cannot be said whether this price growth would continue at such a fast pace in the months to come, as the dynamics in energy prices in the near future could not be predicted.

The head of the Bank of Estonia’s monetary policy department, Ulo Kaasik, as well noted that the index rose mostly due to external factors: motor fuels and heating energy prices. Kaasik stated that the fall in the prices of services indicates that domestic price pressures are small, due to the weak demand environment. No changes are expected in this aspect in the near future.

The Bank of Estonia predicts that the average price increase in 2010 will be 1.3 percent.