Flash comment: Estonia

Economic commentary by Economic Research Department Feb. 7, 2013

Increase in electricity prices compensated by the decrease in transport costs influenced consumer prices in January the most
Contributions to CPI annual growth, pp
14 12 10 8 6 4 2 0 -2 -4 2007 2008 2009 2010 2011 2012 2013 Other Housing Transport Food CPI

According to the data published by Statistics Estonia, the consumer prices grew by 0.7% in monthly comparison in January. Annual inflation slowed marginally to 3.4% from 3.5% in December. As expected, due to the electricity market liberalisation, the monthly growth was mainly influenced by increased electricity price (+23.6% for households). However, it was somewhat compensated by decreased transport costs due to free public transport services in Tallinn provided for its residents since January and also sales of clothing and footwear. In yearly comparison the CPI was mainly influenced by grown housing costs (+9.7%), from which over 60% was due to more expensive electricity price. Alcohol and tobacco products grew 6.7% and 7.9% respectively influenced by increased excise rates and termination of seasonal sales of alcoholic beverages.

Inflation expectations, pts

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

Outlook
Looking forward, the domestic sources will be the main inflation drivers. Global food prices have decreased from the relatively high levels since autumn of the previous year. At the same time, global demand of agricultural output is expected to grow which can increase food prices. Despite of weak global demand compared to supply of oil, prices have increased somewhat during the past weeks. Housing costs will remain the main contributor to the overall price growth for the coming months; also the growing prices of alcohol and tobacco will give their contribution. However we do not see a significant acceleration in the growth of CPI in next few months.
Tnu 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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