Flash comment: Estonia - November 7, 2011: Slower consumer price growth in line with expectations

1. Flash comment: Estonia
Economic commentary by Economic Research Department Nov. 7, 2011
Slower consumer price growth in line with expectations
CPI and inflation expectations According to Statistics Estonia, consumer price (CPI) growth
12 slowed to 4.4% yoy in October, with monthly decline of 0.1%
80
10 observed.
8 60
The biggest contributor to annual price growth was housing
6 40 expenditures due to rising heat energy and electricity prices
4
20
as well as rent costs. Annual growth of food prices slowed to
2 6%, contributing just 1/3 to the overall growth – down from
0
0 more than 11% growth on average this year and almost half
2006 2007 2008 2009 2010 2011 -20 of the total share. Slower growth is supported by seasonal
-2
factors (-1.1% mom was reported due to cheaper fruit and
-4 -40
vegetables) as fell as falling commodity prices in the world
CPI, % (ls) inflation expectations, pts (rs)
market. However, since prices of energy products have risen
Contributions to annual CPI growth, %
- which in turn makes production more expensive - we do not
expect substantial additional downward correction in food
12 other
transport
prices. Compared to September, transport costs fell by 0.6%,
10 housing supported by lower fuel prices. Clothing and footwear, on the
food
8 CPI other hand, became 1.2% more expensive during the month
6
probably due to fewer school-related sales campaigns.
4 We expect consumer price growth to continue to slow in the
2 coming months. This is foremost supported by high
comparison base as price growth accelerated to 5% and
0
2008 2009 2010 2011
higher at the end of last year. At the same time, however,
-2 regulated prices have shown strong growth rates recently
-4 (e.g. heat energy increase in summer and electricity in fall)
which will have an increasing impact on the overall consumer
Annual price growth by regulation basket cost in coming months, especially through higher
30% housing expenditures.
25% According to our forecast, average annual inflation is
20% expected to reach 5% this year.
15%
10%
5%
0%
2006 2007 2008 2009 2010 2011 Annika Paabut
-5%
regulated non-regulated Chief Economist
+ 372 6 135 440
annika.paabut@swedbank.ee
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