Estonian CPI inflation eases to 2.8% y/y in March

CPI inflation eased to 2.8% y/y in March from 3.1% y/y in February, data of the stat office showed on Friday morning. The biggest contribution to the deceleration came from food prices, whose growth slowed down for a fifth consecutive month and reached 5.9% y/y, affected by the recent weakening growth of international food prices, whose impact has apparently started to affect retail prices. Transport prices turned to 0.3% y/y decline due to the lower increase of excise fuel duties this year and weaker increase of international oil prices. Recreation price growth flattened to 0.3% y/y, affected by not so big the weak increase in the number of tourists, which was negatively affected by the significant hike of alcohol excise duties. Moreover, apparel prices swung to a 0.9% y/y decline. The euro appreciation against the dollar also played significant role in the CPI inflation easing. It was the most prominent in fuels as 80% of fuel imports are denominated in USD. The impact was lower in clothing as the share of USD-denominated apparel imports amounts to 17%. On the other hand, housing price growth steepened further to 5.9% y/y, because a second wave of cold air hit the Baltics in March, which boosted electricity prices on the Nordic electricity exchange.

Overall, it seems almost certain that FinMin’s projection that CPI inflation will fall below 3% y/y in H1 will materialize. We do not expect to see significant deceleration of price growth as prices should continue to be boosted by the excise hikes and the strong wage growth. Some downward pressure on prices should come from the easing electricity price growth due to the warmer weather.

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