OREANDA-NEWS. January 10, 2012. According to the CPI published by Statistics Estonia, inflation in Estonia was 0.1% in December, having increased 3.7%, year-on-year. Eurostat's flash estimate shows that euro area annual inflation slowed to 2.8%, reported the press-centre of Eesti Pank.

The Estonian economy recovered rapidly in 2011, resulting in robust inflation in some consumer basket components such as energy and food. Price growth in the external environment contributed to inflation in Estonia to a rather great extent. Core inflation, which averaged to 1.7% in 2011, but increased to 2.2% in December, was more in line with the economic cycle and the level of capacity utilisation.

In the first half of 2011, Eesti Pank forecasted that the annual HICP would be 4.7%. It actually slightly exceeded 5%, mostly due to the price growth of food and energy. The former forecast relied on the futures-based expectation of the average cost of the Brent crude oil to be 78.3 euro per barrel in 2011, but the actual price was some 3% higher.

The HICP is expected to slow also in 2012, averaging to 2.8% this year, according to Eesti Pank's December forecast. However, considering that there will be several price hikes at the start of the year, the slowdown in inflation may be temporarily interrupted in January. Inflation will be sped up by the price increase of electricity, natural gas and thermal energy, but this will be offset by the seasonal discounts and hopefully, by the effect of the abolition of the sales tax in Tallinn.