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Swedbank: Prices expected to level off at 3 percent

Swedbank. Source: Postimees/Scanpix

This year the price increase is expected to level off at 3 percent as a result of a hike in excise duties and the price of raw materials, Liis Elmik, chief economist at Swedbank, said on Wednesday.

Prices again increased by 3 percent in May. The increase in consumer prices was mainly due to the price of food. Food expenses make up nearly a quarter of Estonians' consumption, and even more in the case of poorer households. Higher excise duties had also increased the price of alcohol and tobacco, Elmik said.

She added that the contribution of motor fuels to rising prices was decreasing. In May, motor fuels made up nearly a fifth of the total increase in consumer prices. The impact of the low reference base of oil prices had nearly disappeared. In June, the price of oil should be on the same level as the year before, Elmik said.

Swedbank estimates the price increase in Estonia to remain at 3 percent this year as a result of a hike in excise duties and the price of raw materials. "The rising prices mean that this year the purchasing power of earners will increase more slowly compared with previous years," Elmik added.

"Regardless of the strong sense of security of the consumers, for example, the estimate of a family's financial situation is higher than it has been in the last twenty years, consumption growth has slowed down. The volume of retail sales in the first four months of this year only increased by 2 percent compared to the same period last year," she said.
The contribution of energy to the increase in prices was also decreasing in the eurozone as a whole, even though core inflation also declined to 0.9 percent in May, while it had still been at 1.2 percent in April.

Swedbank is not expecting changes in the eurozone's fiscal policy from the meeting of the Governing Council of the European Central Bank (ECB), which will be held in Tallinn on Thursday. "With regard to cuts to the volumes of asset purchase plans, we are waiting for signals from the September meeting of the central bank. We forecast an increase in base interest rates only at the end of 2018. Therefore, interest rates will remain low for a long time," Elmik said.

The Estonian consumer price index was 0.2 percent higher in May than in April 2017, and 3.3 percent higher than in May 2016.

Editor: Dario Cavegn

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