Inflation worries return to Estonia

TALLINN - Estonian inflation was the fastest in two years in December on higher food and energy prices, just before the country joined the eurozone, reports Bloomberg. Consumer prices advanced 5.7 percent from a year earlier, the biggest increase since December 2008, compared with a 5.3 percent rise the previous month, the Tallinn-based statistics office said on Jan. 7. The median estimate in a survey of three analysts was for a rate of 5.5 percent. In the month, prices grew 0.5 percent.

Inflation expectations were high ahead of euro entry on Jan. 1, even as Prime Minister Andrus Ansip and central bank Governor Andres Lipstok said price increases can’t be linked to the currency switch. The rise was caused by an “unrelenting” jump in raw material costs and bad weather, placing an “added burden” on economic recovery, the central bank said.

“While part of the acceleration in inflation can be explained by the global upward trend in food and energy prices, a significant part of the inflationary pressure is made up by the euro issue,” Violeta Klyviene, senior Baltic economist at Danske Bank, wrote in a note to investors. “The European Central Bank has expressed concern that the renewed inflationary pressures may negatively affect the competitiveness of Estonia’s economy and slow the recovery perspectives.”

Consumer-price growth averaged 3 percent in 2010 and may reach 4 percent this year, the Finance Ministry said on Jan. 7, with the peak during the winter. Eurozone consumer prices rose 2.2 percent in December from a year earlier, the European Union statistics office said on Jan. 4.
Food and beverage prices rose an annual 12 percent, the biggest jump since September 2008, led by 45 percent growth in vegetables prices, according to statistics office data. Fuel prices advanced 15 percent, while electricity and heating costs increased 10 percent.

Sixty-four percent of Estonians expect the Baltic nation’s euro adoption to boost prices, according to a poll of 501 respondents commissioned by the Finance Ministry last month. In November, the level was at 72 percent in a similar poll.
“Annual inflation will probably accelerate at the start of the year, up to 6 percent in the worst case,” said Maris Lauri, the chief economist with Swedbank in Tallinn, in an e-mail. “The currency changeover is confusing consumers and it seems right now that plenty of entrepreneurs in retail and services are trying to raise prices.”