Electricity price pressures eased in July

Sulev Pert
Economist at Eesti Pank

Data from Statistics Estonia show that year-on-year growth in the Consumer Price Index slowed in July to 3.4 per cent as consumer prices were 0.1% lower than in June. Preliminary assessments show that inflation in the euro area stood at 1.6% in July.

The annual inflation growth was held up in July by energy prices, which rose by 6.5%, and food prices, which were up 5.2%. At the same time there was a month-on-month reduction in the price pressure from electricity, which has been the cause of major volatility in consumer prices in recent months. Electricity was 6.1% cheaper in July than in June, when prices were particularly high.

Annual growth in food prices mostly came from the 10.3% rise in fruit prices and the 33.4% rise in the price of vegetables. Prices for other food and non-alcoholic beverages were about the same as in July 2012.

Core inflation, which covers manufactured goods and services, remained low in July at 1.3%. A large part of the fall in prices of manufactured goods was due to seasonal factors, though discounts were lower this year than last. Clothing and footwear was 3.5% cheaper than in June and around 5% cheaper than in July last year. Price increases for services have been largely driven by wage rises, though a revival in tourism has also contributed. Prices for communication services continue to fall in an environment of tough competition.

The Eesti Pank forecast released in June expects that Estonian consumer price inflation for 2013 will be 3.0%.

The primary role of the central banks of the euro area is to maintain inflation in the euro area at below but close to two percent over the medium term. The fact that Estonia's inflation is slightly higher than the euro area average is to be expected and is a consequence of faster economic growth and harmonisation of relative incomes with those of the euro area.

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