OREANDA-NEWS. June 07, 2012. According to Statistics Estonia, the price level declined by 0.1% in May from April. Compared to the same period a year ago, the price level was 3.8% higher.

Oil-dependent consumer basket components have become the main source of inflation. More than half of the 3,8% annual inflation derives from energy.

Uncertainty in the external environment hiked in May and global financial markets saw a decline in prices. Along with it, commodity prices were also markedly adjusted. In the first months of the year, the price of Brent crude oil was about 10 euros higher that assumed in our previous forecast. By now, the price of oil has fallen back to the expected level of about 80 euros per barrel. The interim oil price peak is the reason why the price of natural gas and thermal energy will go up in the middle of the year.

Core inflation has stabilised at around 2% over the year, being 1.9% in May. Excluding communication services, which have cheapened, the rest of services have contributed to the acceleration of core inflation. This has been caused by wage growth, which continued at the start of the year as well. Since labour is the main production input in the provision of services, there is a strong link between services price increase and wage growth. However, Estonia still has plenty of labour resources, and this should help keep wage pressures in check. There were about 80 thousand unemployed people in Estonia at the start of 2012. About 50 thousand were long-term unemployed.

Eesti Pank will publish its next economic forecast on 13 June.