Macroprudential policy may slow Baltic price rises

Significance

Despite a slight deceleration in Estonia to 3.7%, inflation is still rising faster in the Baltic states than the euro-area average. This can partly be explained by higher administrative prices and faster economic growth, but if substantially higher inflation rates persist, their external balances could start deteriorating again.

Impacts

• Faster inflation could at some point reduce the Baltic states’ attractiveness as tourist destinations.
• Higher inflation will discourage Baltic governments from increasing administrative prices going forward.
• Higher wages in the Baltic countries together with Brexit will reduce outward migration; there could be even net inward migration.