Flash comment: Estonia

Economic commentary by Economic Research Department March. 7, 2013

Growth of consumer prices will not accelerate in the next few months
Contributions to CPI annual growth, pp
7 6 5 4 3 2 1 0 -12009 -2 -3 -4 2010 2011 2012 2013

According to the data published by Statistics Estonia, the consumer prices grew by 0.6% in monthly comparison in February. Annual inflation accelerated to 3.7% from 3.4% in January. CPI annual growth was mainly influenced by the increase in food prices and housing costs which together contributed 86% of the total growth. Behind the growth in housing costs was mostly the increase in energy prices (13% yoy). In monthly comparison, the CPI was mainly influenced by the increase in food and fuel prices. The latter was caused by the growing global oil prices. In Estonia the fuel prices have increased somewhat in past few weeks but in annual comparison they remain almost unchanged. In the middle of last year global food prices increased due to the unfavourable weather conditions and lower production volumes, but currently they have decreased to the last year’s level. If global oil prices should continue to grow, the agricultural production costs will raise as well. This in turn will influence the global and also Estonian food prices as they react quite fast to the changes in global prices.

Food

Transport Housing Other CPI

Inflation expectations, pts
60 50 40 30 20 10 0 2009 -10 -20 -30 -40 2010 2011 2012 2013 consumer industry retail services

Outlook
Consumer expectations of price growth in the next few months have increased. In retail trade and services sector there has been upward trend since August last year as well. Although global commodity prices are growing and so are the price growth expectations in Estonia, modest economic activity in developed industrial countries continually hinders substantial acceleration of CPI annual growth. Therefore, we do not forecast acceleration of CPI annual growth in Estonia in the next few months.

Tõnu Mertsina Chief Economist +372 888 7589 tonu.mertsina@swedbank.ee

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Magnus Alvesson +46 8 5859 3341

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