Inflation to pick up in coming months, but to remain low in longer term

Ülo Kaasik, Head of the Economics Department of Eesti Pank

According to Statistics Estonia, the cost of the consumer basket increased by 0.8% in September and price growth accelerated to 4% year-on-year.

Nearly two-thirds of the price surge compared to August was caused by growth in the price of food, beverages and tobacco products. Food price growth was broad-based in September, although some groups of goods (tobacco products, alcoholic beverages and coffee) had a stronger effect. Tobacco products went up in price due to the exhaustion of stocks accumulated before the excise duty rise. September is usually the month when domestic agricultural produce reaches the market and causes a price decline. This year constitutes an exception - the price of fruit and vegetables increased by 1.4% and 3%, respectively.

The risk of a pickup in inflation in the next months has grown as a result of the price rise image created over the past month. Export markets play an important role in the price growth of food, since prices there have soared, but price mark-ups added in various parts of the domestic production chain and trade. The hike in clothing and footwear prices, which accounted for 4.3% on August, is another sign referring to the strengthening of domestic price pressures.

Although there is the risk that inflation will gather speed in the next months, rapid inflation is not expected to continue in the next years. According to Eesti Pank's autumn forecast, the inflation growth rate should start slowing in the first half of 2011 and remain only slightly above the euro-area average.

Further information:
Viljar Rääsk
Public Relations Office
Telephone: +372 668 0745, +372 527 5055
E-mail: viljar.raask [at] eestipank.ee