Inflation in Estonia

In 2007, inflation continued to speed up, primarily because of strong domestic demand, administrative factors and external inflationary pressures. Al- though year-on-year price growth will accelerate this year, inflation is on the verge of a downward trend and thus a gradual decline in the upward pressures will be seen soon. Compared to the autumn forecast, we have now increased the inflation estimate, mainly because of external factors. Owing to the extremely strong global economic growth of recent years, both energy and food prices will increase in the coming years. In the domestic economy, the inflation arising from rapid wage growth is declining this year, but the harmonisation of tax rates towards the EU level will continue feeding the inflation.

According to the forecast base scenario, Estonia’s inflation rate will increase to 9.8% this year and

decrease to 4.5% in 2009 and 3% in 2010. In 2010, price growth will slow to the long-term average level or even below that, bringing Estonia much closer to meeting the Maastricht inflation criterion.

Source: Bank of Estonia

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