Estonian Inflation Accelerates to Fastest in Two Years Before Euro Entry

Estonia’s inflation rate climbed to the highest in 23 months in November on rising food and energy costs, less than a month before the nation adopts the euro.

Consumer prices advanced 5.3 percent from a year earlier, the biggest increase since December 2008, following a 4.7 percent rise the previous month, the Tallinn-based statistics office said on its website today. In the month, prices rose 0.3 percent.

Consumer prices in the Baltic nation, due to become the third east European nation to adopt the euro in January, have risen faster than analysts’ estimates since September. Inflation may be faster than the government’s official forecast next year, averaging about 4 percent after this year’s 3 percent, Finance Minister Jurgen Ligi said last month.

“The present inflation is caused by high food prices on global markets that have spread to local retail prices,” the Finance Ministry said in an e-mail. “Euro zone membership will help us ensure price stability in the mid-term.”

Food and fuel make up a bigger share of the consumer basket than in most of Europe due to Estonia’s geographic location and low income levels, Ligi said. The size of the country, at 1.3 million people, doesn’t allow for longer-term supply agreements in retail trade, which means quicker market reactions to global price developments, he said.

Added Excuse

Euro adoption may be giving companies an added excuse to raise prices, Prime Minister Andrus Ansip said on Aug. 5. Consumer-price growth should stabilize in the near term as raw material price growth has slowed, the central bank said last month.

Global price increases and rising export volumes helped food, drink and tobacco wholesale companies raise average margins to 16 percent in the third quarter from 14 percent a year earlier, the central bank said in an e-mail today.

Higher prices are hampering the recovery in food retail, Maris Lauri, the chief economist for Swedbank AB in Tallinn, said on Nov. 30.

Prices for food and non-alcoholic drinks rose 11.6 percent from a year earlier, accounting for more than half of the overall increase. Electricity and heating prices rose 10 percent.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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