Tallinn - Official figures released by the Estonian national statistics office Tuesday showed the Baltic state's March consumer price index (CPI) rising by 2 per cent year-on-year, compared to 3.4 per cent in February.

The last time the year-on-year CPI figure dipped below 2 per cent was in April 2004.

Estonia's year-on-year inflation figures peaked at 11.4 per cent as recently as June 2008.

The news will provide a boost to the Estonian government's aim to adopt the euro as the national currency as early as July 2010.

Estonia missed the chance to replace the national currency, the kroon, in 2007 as a result of runaway inflation.

Big increases in prices for items such as alcoholic drinks and tobacco were offset by falling costs of motor fuel and rent in March.

"The economic conditions mean many companies have cut prices, making it five months in a row that prices have fallen," said Andres Saarniit of the Estonian central bank.

"Over the coming months the trend to lower prices will continue, although not at such a rapid pace. The longer-term inflation outlook is very much dependent on changes in energy prices in world markets," Saarniit said.

Danske Bank's senior Baltic analyst Violeta Klyviene said the speed of the inflationary fall could provide cause for concern.

"Estonian inflation has, for several months, decelerated more rapidly than we have anticipated. This might indicate that the decline in GDP could be even deeper that the
10 per cent contraction we forecast currently," she said.

"Without a significant cut in expenditure or rise in taxes the public deficit could breach the 3 per cent of GDP target," she warned. (dpa)