Flash comment: Estonia - January 6, 2012: Price growth continues to slow

1. Flash comment: Estonia
Economic commentary by Economic Research Department January 6, 2012
Price growth continues to slow
Contributions to annual CPI growth, % December 2011
12 other According to Statistics Estonia, consumer price annual growth
transport
10 housing slowed to 3.7% in December, from 4.2% seen in November.
food
CPI
Monthly growth was 0.1%. This slowdown is in line with our
8
expectations.
6
While during the first half of 2011 price growth was the most
4 affected by increasing food prices, then at the end of the year rising
2 housing costs became the main contributor to growth. Housing
costs were up 7.5% yoy in December due to increased heat energy
0 and electricity prices. Food price growth slowed to 3.5%, down
2008 2009 2010 2011
-2 from 12% seen on average during the first half of 2011. In addition,
rising fuel prices (10% yoy in December) continue to push up
-4
transport costs which were 4.5% yoy higher.
Price growth expectations 2011
80
The average consumer price growth in 2011 was 5%, up from 3%
60 registered in 2010. The main contributor to price growth was food
40 which reported rapid growth rates in the beginning of the year;
however, no major food price correction was seen at the end of the
20
year. Food price growth in Estonia was impacted by increasing
0 global market prices, trade policies by other countries as well as
2008 2009 2010 2011 2012 rising input prices.
-20
-40
manufacturing 2012
construction
-60 retail We expect price growth to slow this year, supported by global
services
-80 consumers deflation pressures due to slower economic activity in developed
economies. High comparison base will have its effect as well.
Contributions to CPI growth However, decline in fuel prices might not be that notable as
other
volatility in financial markets and political turmoil in oil producing
12%
housing countries can delay oil price decrease. The main domestic factor
transport
10% f ood affecting price growth will continuously be housing costs as heat
CPI energy, electricity and gas prices are set to increase this year.
8%
6%
4%
2%
Annika Paabut
0% Chief Economist
2006 2007 2008 2009 2010 2011 + 372 6 135 440
-2% annika.paabut@swedbank.ee
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