Lithuania Inflation December 2007

Lithuanian's inflation rate rose in December to the highest level in a decade, adding to the general concern that the economy is overheating along with that of Estonia and Latvia. The inflation rate rose to 8.1 percent from 7.8 percent in November, the Vilnius-based statistics office today. Prices rose a monthly 0.5 percent, compared with a monthly gain of 1.1 percent in November.

Food costs, the biggest item in the consumer basket with a 26 percent weighting, rose an annual 15.5 percent in December, the steepest gain of any category in the index. The average inflation rate accelerated to 5.7 percent last year from 3.8 percent in 2006, according to the office.

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.

Estonia Retail Sales November 2007

Estonian retail sales growth slowed in November to the lowest level in more than four years as consumer confidence weakened. Retail sales increased an annual 6 percent, compared with an unrevised 9 percent in October, according to data from the Tallinn-based statistics office last week. It was the lowest growth since September 2003, according to statistics office data.



The statistics office describe the 5% month on month decline in sales as "characteristic of the period prior to Christmas marketing in December". This may well be, but the slope of the downward line in the above chart is remarkably constant. Still, we will soon know when we get the December data.


Banks such as Citigroup and Goldman Sachs have been increasingly saying the Baltic countries, and especially Latvia, face increased risk of a ``hard landing'' because of accelerating inflation and widening current-account deficits, and this has lead to increased speculation about a possible devaluation of the Latvian lats and the Estonian kroon. Finance Minister Ivari Padar forecast last month that inflation, which accelerated to the fastest pace in nine years last month, will be at least 10 percent in the first half of 2008 because of higher taxes on alcohol, tobacco and fuel.

Consumer confidence fell in December to its lowest level in more than 2 1/2 years on worsening expectations for personal and state finances, according to the Estonian Economic Research Institute.



The consumer confidence index fell to minus 10 this month from minus 7 in November, the Tallinn-based Institute of Economic Research said at the end of December. In December 2006, the index was at 7 points.

Consumer spending has weakened in the past months due to rising interest rates and stricter lending terms set by banks, slowing the Baltic country's economic expansion in the third quarter to a four-year low of 6.4 percent. Rising inflation, at a nine-year high of 9.1 percent in November, has also worsened consumer's expectations.

The latest release of the EU Commission Economic Sentiment Indicator for Estonia (published yesterday) gives us a very similar picture.



Copmparing the three charts, and observing how they mark such a very similar line, I would say the position now is very clear indeed.

Estonia Industrial Output November 2007

Estonia's annual rate of industrial production growth slowed significantly in November, with production falling in areas as diverse as dairy products and wood production fell. Output, adjusted for working days, rose an annual 4.4 percent, compared with a 5.9 percent rate in October. Production fell a monthly 0.7 percent on a seasonally adjusted basis, compared with a 1.3 percent increase in October. The economy is evidently slowing, although it would be hard to draw any definitive conclusion about how rapidly from this data.





Industrial output growth was hampered by a slowdown in manufacturing as companies faced increasing labor shortages with unemployment at a 16-year low while domestic demand has evidently started to cool. Estonian economic growth eased to 6.4 percent in the third quarter from 11.2 percent in 2006.




The sector of industry holding the largest share, i.e. the production of food, increased 4%. With regard to the branches of food production, the increase was observed in all branches except the production of milk products. The production of milk products, where the prices rose by more than one third during the year, decreased 4%. Output increased in all branches of machinery and apparatus manufacturing, mainly due to increase in exports. Compared to November of the previous year, the growth of production was the highest in the manufacture of precision instruments (37%).