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Monday, June 18, 2007

Estonian May Inflation Rate Rises to 5.7 Percent on Fuel Prices

From Bloomberg recently

Estonian May Inflation Rate Rises to 5.7 Percent on Fuel Prices

une 7 (Bloomberg) -- Estonia's inflation rate rose in May, driven by fuel and housing costs, moving the Baltic state further from its goal of adopting the euro.

The annual inflation rate increased to 5.7 percent from 5.5 percent in April, the statistics office based in the capital Tallinn said on its Web site today. Prices rose a monthly 0.7 percent, with transport costs rising 2.5 percent from April.

``The inflation pace was set by increases in fuel prices,'' said Anne Karik-Uustalu, an economist with Sampo Pank in Tallinn, before the report.

Estonia has already been forced to drop plans to adopt the euro because the inflation rate has remained above euro-entry rules. An unemployment rate at a 15-year low and a 20 percent jump in wages in the first quarter boosted spending on housing, food and cars.

To adopt the euro, the nation must keep inflation to within 1.5 percentage points of the average 12-month inflation rate of the three European Union nations with the slowest consumer price growth. That rate in April was 3 percent, while Estonia's rate was 4.7 percent in the same month.

Inflation will continue to accelerate this year amid a labor shortage and fast economic growth, the Finance Ministry and central bank have warned.

Moving Targets

The Cabinet of Prime Minister Andrus Ansip last week cut budget surplus targets in 2008-2011 from 1.5 percent of gross domestic product to 0.5 percent, prompting criticism from Central Bank Governor Andres Lipstok.

International institutions, including the International Monetary Fund, are also concerned that the $15.1 billion economy may overheat.

Reining in government spending is among the few tools available to Estonia to control price increases because the local currency, the kroon, is pegged to the euro in the exchange-rate mechanism.

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