Inflation nudges uncomfortably higher

TALLINN - Estonian inflation accelerated in May to the fastest pace in 15 months due mainly to rising oil and food prices, prompting the central bank to warn rapid price growth may hinder the Baltic nation’s recovery, reports Bloomberg. Consumer prices rose 3 percent from a year earlier, after a 2.9 percent increase in April, shows the Tallinn-based statistics office. The median estimate of three analysts surveyed by Bloomberg was 3.3 percent. Inflation may peak in June and slow in the second half, the Finance Ministry said.

“Inflation is rather high considering the deep recession last year and significant unused resources in the economy,” the central bank said in an e-mailed statement. “Price growth could hamper the return to economic growth.”
Estonia is set to become the 17th country using the euro next January, even as the European Central Bank warned last month it may struggle to keep inflation under control. Estonia returned to price growth in March after a 10-month period of deflation as oil prices rose and improving exports helped the nation exit the second-deepest recession in the European Union.

Inflation may accelerate this month because of a 1 percent sales tax on essential goods introduced in the Tallinn municipality and higher electricity tariffs, the Finance Ministry said. Price growth will slow in the second half as tax increases a year earlier won’t affect the annual comparison, it added.

Consumer prices harmonized to EU 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 European Commission said last month.
In the month, prices rose 0.2 percent, the smallest increase in three months. Fuel prices rose an annual 28.6 percent and food prices increased 1.7 percent, with fresh vegetable prices jumping 32.3 percent, the statistics office said.