The cut in excise slowed inflation
Economist at Eesti Pank
The price level in Estonia in July was 2.1% higher than a year earlier, but was 0.1% lower than in June. The cut in the excise on alcohol had a substantial impact on this. Inflation has also weakened in foreign markets.
The lower rates of excise for alcohol were introduced from July, but the pass-through to retail prices for alcohol was relatively small according to data from Statistics Estonia. Prices for strong alcoholic drinks fell by 6.7%, but beer prices by only 2.5%. As unemployment is low and wages are rising fast, companies can keep their price margins high. The excise cut should reduce the rate of inflation by 0.2 percentage point this year.
Inflation in the euro area slowed to 1.1% in July, a rate last seen at the start of last year. Inflation came down in foreign markets partly because international trade barriers have reduced demand for goods and commodities. The dollar price of crude oil was 14% lower than a year previously. Energy prices fell and so did prices for imported clothes and home electronics, which were cheaper than a year earlier.
Eesti Pank’s forecast published in June expects that prices will rise by 2.5% this year.
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