Energy prices pushed inflation up across Europe
Economist at Eesti Pank
Supply-side factors continue to drive inflation upwards as energy prices pushed yearly inflation to 6.6% in September. Inflation is notably higher in Estonia than in the euro area on average because energy and food, which have become more expensive on global markets, make up a larger share of the Estonian consumer basket than the average. Moreover, price changes are passed on to end consumers in Estonia faster than elsewhere.
The share of energy and food in the Estonian consumer basket is around a third larger than the euro area average. Energy is 12.5% of the Estonian basket and 9.5% of the euro area basket, while food is 29% in Estonia and 22% in the euro area. This means that higher prices for food and energy have a larger direct impact on inflation in Estonia than in the euro area on average.
Changes in energy prices reach Estonian consumers faster than those in other European Union countries, and they are also more volatile. One reason for this may be that the share of contracts that use exchange prices is large and has risen year by year until around half of household consumers now have such contracts. Fuels and energy accounted for around 60% of inflation in September, with some 40% coming from the price of electricity.
Prices are currently high for many energy products. The oil price rose in early October to its highest level for five years, and it will also push yearly inflation high in the coming months, since it is now double what it was a year ago. Natural gas, which rose rapidly in price in the past week, makes up a relatively small share of the average consumer basket, but those who use gas for heating may feel a substantial impact. The rise in the price of gas will also indirectly affect the prices of other energy products like electricity and domestic heating. The higher gas price will be passed through into household spending in the coming heating season.
Higher prices on global markets for food commodities like cereals and oilseeds have reached consumer prices more after they started to rise faster in the summer. Prices for food products including alcohol and tobacco were up by 2.9% in September, and their impact will also be felt in the fourth quarter.
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