Estonia's consumer price index (CPI) growth slowed down to 3.4% in annual terms in December from 4.2% y/y the previous month, data from Statistics Estonia showed on January 8. The gain leaves overall price growth in 2017 at 3.4% as well, a major pick up compared to inflation of just 0.1% in 2016.
Estonia saw its inflation remain elevated through last year, primarily owing to higher prices of food, the data showed. Import prices also played a part, as did the fast-rising wages that drove consumption. CPI is expected to expand 3% in 2018, according to the European Commission’s forecast from October. The forecast from Eesti Pank is 3.2%.
December saw the Estonian CPI in positive territory for the seventeenth consecutive month after deflation dominated between May 2015 and July 2016. In monthly terms, consumer prices fell 0.3% in December, compared to an expansion of 0.5% m/m the previous month.
Prices of food and non-alcoholic beverages rose 6.3% y/y. An 11.6% y/y rise in the price of alcoholic beverages and tobacco also contributed to the growth in headline inflation. There was also a 9.9% y/y rise in the price of diesel fuel and a 9.6% y/y expansion in the price of petrol. Prices in the transport sector grew 3% y/y overall.
Throughout the year, prices of food grew 5.7%, while the alcohol and tobacco segment saw prices expand 8.7%, while transport prices grew 3%. Communications was the only segment to see prices drop, at 4.1%.
"Inflation in Estonia was affected to a large extent last year by price changes in the external environment. Reduced output raised prices on global markets most for dairy products, especially butter. The higher level of economic activity in Estonia in 2017 also favoured price increases," Eesti Pank's economist Sulev Pert said in a comment.
At 3.4%, the actual inflation in 2017 proved close to forecasts. The European Commission predicted CPI at 3.7% in its autumn economic forecast, while Eesti Pank put it at above 3%.