The energy compensation paid by the government slowed inflation

Autori Sulev Pert pilt

Sulev Pert

Eesti Panga ökonomist



Data from Statistics Estonia show that consumer prices were 1.1% lower in October than in September, and inflation over the year slowed to 22.5%. The main reason why inflation slowed was that energy prices fell and were down more than a tenth on the month in October.

One reason why energy prices fell is that the government measure offering partial compensation for energy prices came into force. Natural gas was 38% cheaper than a month earlier, electricity was 28% cheaper, and heat was 5% cheaper. Market prices for gas and electricity have fallen in recent months across Europe, and so there was less need for compensation and also less cost pressure on the state budget. Energy prices may start to rise again though as the weather turns colder.

Lower energy prices were however the only good news for consumers, as prices of food and manufactured goods continued to rise at a rapid rate. Prices for fruit and vegetables usually fall in autumn for seasonal reasons, but they rose fast this October. Prices for fruit and vegetables were 11% higher in September than a year earlier, but in October there were 24% higher. This may be because of unfavourable weather for agriculture and the high cost of energy. Prices for accommodation services, holiday travel and rents fell in their usual seasonal manner.

The loss of purchasing power of wages is increasingly expressed in cautious demand, which is reducing the ability of businesses to raise their prices at the same rate as before. Eesti Pank forecasts that consumer price inflation will reach 19.1% this year, but that it will slow to around 7% next year. Difficulties in passing production costs through into the end prices of products and services will hurt the profitability of companies, especially in energy-intensive and export-oriented sectors of the economy. This will lead to cuts in production volumes and in jobs.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: 56920 930
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