Inflation rate raises eyebrows

TALLINN - Estonian consumer-price growth accelerated to the fastest pace since the end of 2008, as food prices advanced, reports Bloomberg. The inflation rate rose to 5.7 percent, from 5.3 percent the previous month, the highest since December 2008, the Tallinn-based statistics office said on its Web site on March 7. The median forecast of five analysts surveyed by Bloomberg was for a rate of 5.2 percent. From the previous month, prices rose 0.6 percent.

Global food-price increases may raise Estonia’s average annual inflation this year to 4 percent from 2.7 percent in 2010, before declining to 3 percent in 2012, the International Monetary Fund forecast on March 3. Estonia’s low income per capita and northern location makes it more sensitive to food and energy-price shocks than its EU peers on average, it said.
“Food inflation was mainly driven by a steep appreciation of vegetables and potatoes due to limited domestic supply as exports to Russia have grown fast,” Nils Vaikla, an analyst with Tallinn-based LHV Pank, said in an e-mail. “While we expected a slowdown in inflation in the spring, the jump in oil prices due to unrest in northern Africa and the Middle East reached Estonian fuel stations at the beginning of March, which means inflation won’t slow much in the near term.”
Annual inflation will remain “around” five percent in the coming months as food and fuel costs keep rising, the Finance Ministry said in an e-mailed statement. Inflation will probably be “somewhat” faster than forecast, the central bank said in a separate statement, without giving a timeline.

Food prices rose a monthly 1.8 percent for an annual increase of 13.2 percent, the statistics office said. Vegetable prices rose an annual 34.5 percent, and dairy prices increased 18 percent.
Estonian retail sales declined in January from a year earlier for the first time in six months as the Baltic nation adopted the euro.

The Baltic country returned to price growth in March 2010 following ten months of deflation due to the second-worst recession in the 27-member European Union behind Latvia in 2008 and 2009.
Accelerating inflation may cap household’s purchasing power and hamper spending, the central bank and Finance Ministry have said in past months. Some price increases may be due to weak competition, the IMF said in its report last week, citing Estonian authorities.