Estonia Inflation December 2007

Estonia's inflation rate rose in December to a nine-year high, led by food and housing costs, raising concern that price growth will destabilize the currency regime by making exports increasingly uncompetitive at the same time as domestic demand plummets. Estonia's inflation rate jumped to 9.6 percent, the highest since August 1998, from 9.1 percent in November, the statistics office said in Tallinn today. Prices rose a monthly 0.7 percent.



Accelerating inflation and a widening current-account deficit triggered by a consumer spending boom are increasing the risk of an abrupt slowdown in the Baltics generally, economists including Lars Christensen from Danske Bank A/S have been arguing repeatedly recently. Estonia's inflation rate is the third- highest in the European Union, following, of course Latvia and Bulgaria.

And there is no sign of a slowdown in price increases in the near future. Finance Minister Ivari Padar recently forecast inflation in Estonia would be at least 10 percent in the first half of 2008 because of tax increases on alcohol, tobacco and fuel.


The consumer-price index was mainly pushed upwards by an increase in the prices of milk, cereals and meat products, as well as by rising prices for energy, heating materials and motor fuel, the statistics office said. Food prices rose 16 percent on the year and housing prices grew at 14.1 percent (a rate which is falling by the month, as the property boom has definitely bust in Estonia, but we still have high base effects from the first half of 2007 to work their way out of the system.

The average inflation rate rose to 6.6 percent in 2007, also a nine-year high, compared with 4.4 percent in 2006, according to the statistics office.