Flash comment: Estonia

Economic commentary by Economic Research Department Nov. 7, 2012

Consumer price growth accelerates in October

Contributions to CPI annual growth
12 10 8 6 4 2 0 2008 -2 -4 other transport housing food CPI

According to the data published by Statistics Estonia, consumer prices grew by 0.2% in monthly comparison in October. As a result, the annual growth accelerated to 4.1% from 3.8% in September. The main reason for faster inflation is food price growth which accelerated from 4.4% to 6.3% yoy (0.7% increase in monthly comparison) and gave more than a third of the annual increase. While during most of this year the biggest contributor to the growth have been housing prices, its impact weakened in October due to strong base effect (7% yoy, including 12% rise in heat energy). Transport prices remained flat in monthly comparison due to falling fuel prices, however, the annual increase accelerated to 4%.

2009

2010

2011

2012

Outlook
Inflation expectations
60

40

20

We expect the consumer price growth to reach 4% on average this year. Inflation during the remaining two months of the year will be influenced by (i) declining fuel prices (currently the prices are about 5% lower compared to October); (ii) possible further acceleration in food prices due to carry-over of unfavourable global developments which occurred during the summer. In the beginning of next year, however, a one-off pickup in inflation will take place due to the opening of electricity market. According to our expectations, this will add 20-30% to the electricity price which in turn can increase the consumer price inflation by up to 0.8pp. As the electricity price will be fully dependent on open market developments, the monthly changes in inflation can become more hectic.

0 2009 -20

2010

2011

2012 industry retail services consumers

-40

Kristjan Tamla Acting Chief Economist + 372 888 7952 kristjan.tamla@swedbank.ee

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Cecilia Hermansson, +46 8 5859 7720

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