Energy prices will continue to pass through into consumer prices in the coming months
Economist at Eesti Pank
Inflation of 7% in October was caused by a sharp rise in energy prices, blockages in supply chains for durable goods, and the low reference base of last year. Energy prices that rose steeply in October included the prices of natural gas and motor fuels. The higher price of natural gas will be passed through in the coming months into the prices of heat and other goods, preventing inflation from falling.
Although the price of electricity fell in October for the first time in a long time because of the government decision to cut distribution network fees, it was still 41% higher than it was a year earlier. There is a major shortage of environmentally sustainable and cheaper electricity production in the Baltic states and Finland. Sustainably lower price levels for electricity can be expected in the spring, when weather conditions allow electricity to be produced more cheaply in Scandinavian countries.
There have been interruptions in the production of durable goods, especially cars and household electronics, which has caused prices for them to rise rapidly. Difficulties in production and supply may last for longer than previously assumed, and so upwards pressure on prices will remain in future. A problem for the European economy is that production work is spread across countries, and some intermediate goods are produced in Asian countries for the sake of increased efficiency, but it has become difficult to get those goods from those countries.
Average inflation in the countries of the euro area rose to 4.6% over the year. If the rapid rise in energy prices is taken out, the rise in the price of the rest of the consumer basket was close to 2%, which is the long-term target for inflation of the European Central Bank.
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