Estonian inflation slows in August

Prices climbed 0.1 percent from the previous month and 11.0 percent from a year earlier, the state statistics office said on Friday. That marked a slowdown from July when prices rose 0.7 percent on the month and 11.1 percent on the year.

Estonia has been battling double-digit inflation for much of 2008 due to higher oil prices and a wage-price spiral in the once booming economy. The inflation rate hit a 10-year high of 11.4 percent in April and touched the same level again in June.

Its retreat from those peaks has prompted the government and the central bank to expect that inflation has passed its peak but the Estonian finance ministry still expects the inflation rate to remain in double digits in the near term.

Yearly inflation will stay above 10 percent in the coming months,' it said in a statement, adding it expected inflation to fall after the end of the year due to base effects. Estonia increased excise duties on heating costs during 2007 and on fuel from January 1 2008. Fuel use is weighted heavily in the local price inflation index calculation compared with other European Union states.

SOME SURPRISES The easing in inflation was broadly in line with market expectations -- four analysts in a Reuters survey had forecast monthly inflation at a median of 0.2 percent and annual inflation at 10.98 percent. Cheaper motor fuel costs and the seasonal decrease in the price of vegetables helped brake the month rise in prices. Fresh food prices fell 1.2 percent on the month and transport prices fell 1.8 percent.

In August fresh domestic food arrived in the market, taking prices down,' the central bank said in a statement. But the pace at which clothing and footwear prices rose surprised analysts. Clothing and footwear prices were higher than expected as it seems that retailers think they can boost turnover by raising prices instead of increasing sales,' said Maris Lauri, macroeconomic analyst from Hansabank markets.

The yearly index was influenced mainly by the rise in food costs and motor fuel prices compared with a year earlier. There were also rises in transport prices and higher price tags on alcoholic beverages and tobacco. Annual price increase of food and transport accounted for a half, housing for a sixth, and alcohol and tobacco, the rates of excise duties of which had increased, for nearly an eighth of the total percentage change,' the statistics office said.

Estonia and the other two Baltic states and their banks have been hit by ratings or outlook cuts by ratings agencies due to macroeconomic problems such as high inflation and worries the countries will suffer a sharp slowdown.

Source http://hemscott.com/news/static/tfn/item.do

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