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Swedbank expecting inflation to slow in 2019

Swedbank. Source: Postimees/Scanpix

Inflation this year will exceed 3%, but is expected to slow next year as a result of slowing energy price increases as well as the fact that excise duties on alcohol likely won't increase further, senior analyst at Swedbank, Liis Elmik said.

"Energy has been the biggest contributor to rising prices. The price of petrol and diesel has gone up by 20% year on year. The price of electricity and other types of fuel, such as wood, gas and others, also increased," Elmik said in a press release.

In October the oil price increased due to the United States' sanctions on Iran. Operating restrictions relating to oil entered into force in Iran on 5 November, and thus several large European oil companies have ceased importing Iranian oil, the Baltic News Service reports.

"The oil market is more or less in balance at the moment, as North America, Saudi Arabia and Russia are all producing near record volumes. Additionally, the decreasing oil price is also backed by the slowing increase of demand, particularly in the developing markets," Elmik said.

Swedbank estimates that the price of oil will remain on roughly the same level as this year and drop to under $70 per barrel in 2019.

The price of electricity in October exceeded that of a year ago by a tenth. In the coming months, the price should drop, as water levels in Nordic hydro power stations have risen and major maintenance works have been concluded, the bank said.

The price of food increased by 2.8% in October, mainly due to adverse weather conditions that are making vegetables more expensive.

"Inflation will reach over 3% this year, approximately as much as it was last year. Of different types of goods, unavoidable expenditures are contributing to the increase the most—housing, food, transport. In addition, the price index is influenced by the fact that alcohol and tobacco are becoming more expensive," Elmik added.

Next year, however, inflation is expected to remain under 3%, as the rise in energy prices will come to a halt and further increases in excise duties are unlikely.

Despite the rapid price increase, the living standard of employees in Estonia will still improve, Swedbank expects. The average gross wage is rising at approximately twice the rate of inflation. According to Swedbank, the average gross wage will rise by about 7% this year and by about 6% in 2019.

The real net salary adjusted to prices is expected to grow by 10% this year due to an increase in tax-free income, and a lot less the next year, namely by some 2%.

Estonia's consumer price index (CPI) for October 2018 rose by 0.5% compared to September and by 4.4% year on year. The previous time that the change of the consumer price index compared to the same month of the previous year was 4.4% or more was in March 2012.

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Editor: Dario Cavegn

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