Flash comment: Estonia - May 8, 2012: Inflation slowing according to expectations

1. Flash comment: Estonia
Economic commentary by Economic Research Department May 5, 2012
Inflation slowing according to expectations
Contributions to annual CPI growth, % According to data released by Statistics Estonia, the consumer
12 prices increased by 0.3% in monthly comparison in April, which
other
transport was in line with our expectations. The annual growth slowed from
10 housing
food
4.4% in March to 4%.
8 CPI
The main contributor to annual inflation continues to be housing
6 costs (10.7% yoy) which accounted for almost half of the price
increase. The contribution from transport costs is increasing (20%
4
of total) as fuel price growth has been strong, reaching more than
2 15% yoy in April. Excise tax hikes pushed up tobacco and alcohol
prices (6.6% yoy).
0
-2
2008 2009 2010 2011 2012 Outlook
-4 Although wage growth accelerated at the end of last year (real
wage increased more than 4% during the last two months), it is still
insufficient to cover the declining purchasing power of households
Annual CPI growth by price regulation
due to increasing necessity prices. In addition, wage growth has
30% been unbalanced between sectors and occupations.
25% We expect price growth to slow further in coming months, affected
20%
by weaker domestic demand due to rising number of budget-
constrained households. However, structural unemployment could
15% push up wage growth above productivity growth in certain sectors
which in turn could accelerate price growth in these sectors. In the
10%
long term, the spill over effect to other sectors could create
5% additional inflation pressures for the whole economy.
0% Nevertheless, continuously strong growth of tourists and their
2007 2008 2009 2010 2011 2012 expenditures can offset the negative impact from weakening
-5%
domestic demand.
regulated prices non-regulated prices
Our current forecast sees consumer prices growing 3.8% on
Inflation expectations by sectors average this year. Price growth is higher during the first half of the
60
year, while it is expected to slow considerably during the second
half of the year, impacted by, in addition to weaker domestic
40 demand, by higher comparison base.
20
0
Annika Paabut
2009 2010 2011 2012
Chief Economist
-20
+ 372 6 135 440
annika.paabut@swedbank.ee
-40 industry
retail
services
-60 consumers
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