Consumer price growth in Estonia accelerated to 4.4% in March, exceeding expectations. Higher alcohol, tobacco, and food prices contributed significantly due to excise tax increases and seasonal factors. Housing costs, which increased 11% year-over-year, accounted for over 40% of annual inflation as global energy prices rose. Transport costs also increased due to higher oil prices and airfares. Inflation is expected to be higher than the previous forecast of 3.2% for the year due to the strong first quarter price rises, with housing costs being the main driver in the first half and moderating in the second half.

1. Flash comment: Estonia
Economic commentary by Economic Research Department 9 April 2012
Price growth in March above expectations
Consumer price growth According to the data published by Statistics Estonia, the consumer
10% 2.5% prices grew by 1% in March compared to the previous month with
the annual inflation accelerating to 4.4% (from 4.2% in February).
8% 2.0%
These price increases exceeded our expectations, mostly on the
6% 1.5%
account of higher alcohol and tobacco as well as food prices
4% 1.0% (+2.9% and +1% mom, respectively). Tobacco prices were affected
2% 0.5%
by the new production with higher excise rates (raised in January),
and food prices mostly by stronger than expected impact by
0% 0.0% seasonal factors.
2009 2010 2011 2012
-2% -0.5% The main contributor to growth was, as expected, the continuously
-4% -1.0% rising housing costs (11% yoy), making up more than 40% of the
Monthly grow th (rs)
Goods
Annual grow th
Services
annual price increase. This was affected by rising global energy
prices as well as colder than usual weather in March. Rising oil
prices and more expensive plane tickets pushed up transport costs,
Contributions to CPI growth, pp
by 1.9% mom and 5% yoy.
12 other
transport
10 housing
food
8 CPI Outlook
6 Housing costs will continue to be the main contributor to the overall
price growth throughout the first half of this year; during the second
4
half, however, the comparison base will start to change, thus
2 decelerating the growth of housing costs. We also expect food
price growth to slow, affected by more favourable global trends.
0
-2
2008 2009 2010 2011 2012 In January, we forecasted the average price growth this year to be
3.2% but in light of the price increases seen during the first months,
-4 this seems to be too low; we are currently in the process of revising
our forecasts. Oil price movements will remain one of the biggest
Inflation expectations, pts risks to inflation outlook.
80
Higher price growth can in turn dampen private consumption as
60 growing prices of necessities force households to consider more
their purchases, thus making them more price sensitive. Weaker
40
demand, on the other hand, limits further consumer price growth.
20
0
2009 2010 2011 2012
-20
-40
industry
construction Annika Paabut
-60 retail Chief Economist
services
-80 consumers + 372 6 135 440
annika.paabut@swedbank.ee
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