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Analysts no longer forecasting inflation to slow

Quarter of price advance down to food prices in February.
Quarter of price advance down to food prices in February. Source: Ken Mürk/ERR

While analysts forecast price advance to slow down in the second half of the year, Russia's attack on Ukraine has created new uncertainty, with the prices of energy and food now believed to continue growing.

Analyst for SEB Mihkel Nestor said that it is impossible to make any numerical forecasts at this time.

"What is for sure is that predictions from earlier this year are no longer valid and inflation will remain high possibly for the remainder of the year. It remains unclear today whether Russian gas and oil deliveries to Europe will continue. That is why the price of gas and oil has reached astronomical heights today," Nestor said.

Food and energy prices make up more than a third of the Estonian consumer price index. Nestor said that the fact Russia and Ukraine are key cereals exporters has hiked the price of wheat by 50 percent.

"That is why we cannot rule out the consumer price index growing faster than salaries this year. That said, we can expect the government to try and alleviate rapid price advance, which is why the index might not grow as much as feared," the analyst offered.

Kristo Aab, analyst for LHV, said that food prices have become an increasingly serious component in general price advance. "Nearly 25 percent of the hike was down to more expensive food in February, with potatoes 122 percent, fresh vegetables and fish 40 percent more expensive than a year ago."

While forecasts from the end of last year expected inflation to slow in the second half of 2022, the war in Ukraine has changed things.

"Decisions by companies, whereas we can expect states to follow soon, not to buy Russian oil and gas have delivered a sharp world market energy price hike, while the war is now threatening to destroy this year's harvest in Ukraine. All of it likely means continued pressure on food prices as Ukraine is the largest cereals producer in Europe," Aab said.

He added that prices are expected to go up in all sectors. "Consumers have realized as much and feel their purchasing power waning and uncertainty start to set in. If a month ago, people believed employers could match salary advance to price hikes, this seems less likely now," the analyst said.

Sulev Pert, economist for the Bank of Estonia, said that rapid price advance will start to slow economic growth. Losing access to the Russian market will hurt companies in terms of availability of materials and export opportunities.

Pert added, however, that soaring gas prices are improving the competitive ability of oil shale energy. The price of CO2 quotas has also come down in recent weeks, he said.

Data from Statistics Estonia suggests the consumer price index was up 1.5 percent compared to February and 12 percent year-over-year.

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Editor: Marcus Turovski

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