Andres Saarniit, Adviser to the Economics Department of Eesti Pank

According to Statistics Estonia, prices in September grew 7.2% year-on-year. Although this was the most rapid inflation rate of the year, it does not denote a new period of accelerating inflation stemming from domestic price pressures. When we leave aside the most volatile and global-market-prices-dependent consumer basket components such as food and oil, the index change reflects mainly price increases which took place before September.

The consumer price index was most affected by food products the price of which were 1.8% higher in September compared to August. Due to increased demand in the world market, food prices have risen almost twice faster than forecasted a year ago. Another influential factor was the price growth of motor fuel.

As regards service prices, heating continued to become more expensive. In addition there took place the price corrections of educational and child care institutions and recreational and sports services, which occur every autumn. The extensive, above 10% price increase of services compared to September 2006 is for the greater part a reflection of the price growth of the first half-year. The influence of the latter on consumer prices will be perceptible for at least the next half a year, irrespective of easing demand pressures.

The consumer price index, which compares the cost of the consumer basket with the same month of the previous year, has been affected by the price movements of the entire year. The September consumer price index also reflects the fact that compared to August 2006, the cost of food grew only 0.3% in September 2006, whereas the price of heating did not change and motor fuel even cheapened.

When we leave aside risks related to the global market prices of food, we can expect the next-quarter domestic inflationary pressures to be the smallest of the whole year. Unfortunately, this will not be reflected in the consumer price index (which compares the price of the consumer basket with the same time of the previous year) any time soon.

For further information:
Livia Kulm
Public Relations Bureau
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