CPI inflation eased to 3.4% y/y in December after accelerating to 4.2% y/y in the month before, data of the stat office showed on Monday. The main contribution to the slowdown came from transport prices, where growth eased to 3.0% y/y, after reaching eight-month high in November. Considering the further increase of oil prices, we believe that transport prices will rise at a quickening pace in the coming months. Moreover, the food prices growth eased to 6.3% y/y. The increase of alcohol and tobacco prices remained strong due to the excise duty hikes. Looking ahead, it should remain solid due to the further excise tax increase. Clothing price growth accelerated to 3.6% y/y, likely underpinned by further increase of household demand, which was boosted by strong wage growth and high employment.
The average CPI inflation for 2017 came in at 3.4%, after standing at 0.1% in 2016. The figure coincides with the forecast of the government and Swedbank and is slightly below the 3.5% projected by the central bank. This once again highlights the good macro forecasting capacity of Estonian institutions. The highest contribution to last year’s increase in prices came from food prices (up by 5.7%), which were boosted by the crop damages. Moreover, alcohol and tobacco prices rose by 8.7% due to the increase of the excise duties on both alcohol and tobacco. Transport prices went up by 5.0%, which is in line with the increase of oil prices. In the meantime, accommodation prices went up 5.9%, boosted by Estonia’s EU presidency.