Producer Price Inflation in the Baltic Countries

Inflation in producer prices in the Baltic States spiked up in the last two months. Data on producer prices for Estonia and Latvia were released yesterday and show year over year rates of increases in the seasonally unadjusted data for May 2004, of 3.05% for Estonia and 7.29% for Latvia. Lithuania had reported a 10.74% increase earlier this month.Oil prices increases appear to be the chief culprit in all three countries. In addition, Latvia reported that some administrative price adjustments associated with its entry into the European Union were made earlier in the year.

If we take the cumulative data for the January-May, 2004. compared with the comparable period of 2003, instead of just one month-to-month comparison, the result are much smaller increases for Estonia and Lithuania -- 1.45% and 1.87%, respectively. The year to date increase for Latvia remains high at almost 6.0%, suggesting that in addition to the oil price effect, the administrative price adjustments resulted in a one time upward shift in the producer price level.

Germany's institutional investors and financial analysts became a little more optimistic in June. The ZEW Financial Marketing Survey that polls some 350 investors and analysts reported that the percentage of optimists over the pessimists rose 1% from 46.4 in May to 47.4 in June. This was the first increase since last December. The outlook for continued strong export demand has apparently outweighed lackluster domestic prospects. The ZEW measure is based on a small sample and is volatile; however, it often gives an early indication of the results of the broader IFO index to be released this Friday.

Italian consumers also showed some increased confidence in June. The ISAE measure of consumer confidence rose 2.78% to 99.9 (1980=100) in June from 97.2 in May. However, confidence of the Italian consumer is still well below the ebullient levels of the pre September 11, 2001 days.