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Inflation rate worryingly high

  • 2010-12-08
  • From wire reports

TALLINN - Estonian consumer prices rose in November at the fastest annual pace in 23 months on higher food and energy prices, reports Bloomberg. Consumer prices rose 5.3 percent from a year earlier, the biggest increase since December 2008, following a 4.7 percent rise the previous month, the Tallinn-based statistics office said on its Web site. In the month, prices rose 0.3 percent.

Inflation, which has accelerated in 12 out of the past 13 months, may be faster than the government’s official forecast next year, averaging about 4 percent after this year’s 3 percent, because of global fuel and food prices and reviving domestic demand, Finance Minister Jurgen Ligi said last month. Higher prices are hampering the recovery in food retailing, Maris Lauri, the chief economist for Swedbank in Tallinn, said on Nov. 30.

Prices for food and non-alcoholic drinks rose 11.6 percent from a year earlier, accounting for more than half of the overall increase. Electricity and heating prices rose 10 percent.
Estonian regulators have voiced concerns in past months that the country’s plan to adopt the euro on Jan. 1 is giving companies an added excuse to raise prices. Consumer price-growth should stabilize in the near term as raw material price growth has slowed, the central bank said last month.

But an economist of the Bank of Estonia, Martin Lindpere, commented that one of the major factors in the price growth is stores’ record high mark-ups added to prices this year, reports Postimees Online. He explained that along with the price growth on the global market and the increase in export volumes, the stores’ mark-up levels also grew in the third quarter in the year-on-year comparison.

While last year in the third quarter, the average wholesale trade gross margin on foodstuffs, beverages and tobacco products was 14 percent, this year it was by two percentage points higher. The higher mark-up helped boost profits of wholesale trade companies that were among the highest ever in the third quarter.

At the same time, Lindpere estimated that the abrupt surge in food prices may remain temporary. “On the basis of the experience from the years 2006-2009, we cannot rule out the option that the very abrupt surge in Estonian consumer prices caused by an increase in raw food would be followed by a fall in prices,” he remarked.

Apart from the food prices and energy prices, inflation in the rest of the shopping cart was modest - 0.9 per cent in the year-on-year comparison. Lindpere noted that the labor market has improved slightly since the lowest point in the beginning of the year and the overall economic activity level has increased, but that will not make it easy to increase prices.