16.01.2013

In December, prices fell by 0.1% month-on-month and the annual inflation rate decreased to 3.5%, which is incidentally the lowest rate seen in the last two years. In 2012 altogether, prices increased by 3.9%, which is in line with the summer forecast of the Ministry of Finance.

No significant changes occurred in December prices. Based on experience from previous years, companies often time their price changes to take place at the beginning of the year. Alcohol discount sales preceding holidays and the reduction in the price of fuel caused a slight decrease in prices.

In summary, the inflation rate in 2012 was lower than in 2011, when it reached 5% due to the rapid rise in food prices. In the previous year, inflation was most greatly affected by the 9% increase in housing costs. The increase in the price of district heating in relation to the high fuel prices on foreign markets comprised nearly half of the aforesaid. The second main factor was food prices, which rose to a more modest extent compared to the preceding year. At the end of the previous year, the increase in the price of fuel decelerated to 2.4%, yet in summary for 2012, the price of fuel increased by 9%.

In 2012 external factors affected prices most due to high commodity prices and the weakening euro. Core inflation, which reflects the impact of domestic factors, increased somewhat, but regardless of the broad-based increase in salaries, it is still reserved. Core inflation, calculated according to the methodology of Eurostat, was approximately 2.7% in the previous year. Thanks to good economic conditions, the increase in salaries has exceeded inflation for the last year and a half, which means that the purchasing power of people is increasing. However, reaching the level of the purchasing power witnessed prior to the recession will take some time.

The increase in prices in December in the Eurozone was, at first estimate, 2.2% and summarily 2.5% in 2012. Regardless of the recession in the Eurozone, the increase in prices still exceeds the level desired by the European Central Bank due to high commodity prices.

Due to the opening of the electricity market, inflation in Estonia may temporarily accelerate to 4% at the beginning of the year. Price pressures on foreign markets have receded due to the weakness of the global economy, and therefore the deceleration of the increase in heating prices and the stabilising fuel prices will compensate for the impact of the opening of the electricity market. Therefore, a decline in headline inflation to 3.5% may be expected in 2013.

Additional information:

Rainer Laurits
Public Relations Department
Ministry of Finance of Estonia
Phone +372 611 3035
E-mail: Rainer dot Laurits at fin dot ee

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