The fall in prices fastened as fuel prices declined

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Sulev Pert
Economist at Eesti Pank

Data from Statistics Estonia show that the consumer prices decreased 0.3% in annual comparison in July – the fall in prices was 0.2 percentage points deeper than in June, when the price level was 0.1% lower than a year ago. The inflation in the euro area remained at 0.2% in July.

The fall in prices fastened because fuel prices declined 2.8% compared to June, giving around half of the monthly drop in prices. Oil price declined 9% on global markets in July over the month and its medium term effect on the Estonian consumer prices is estimated to be around -0.3 percentage points. Some of the fall in oil price will pass through to goods and services prices with a time-lag in the third and the fourth quarter. The changes in oil price impact strongly, for example, the price of natural gas and therefore the cost of thermal energy.

Excluding energy products, the rise in the cost of the consumer basket fastened to 1% in July. The increase in food prices (including alcohol and tobacco) in recent months has mostly been impacted by previous tax rises and unfavourable weather. Inside the food basket, the price has increased the most for fruits and vegetables this year - 15% and 7.2% in annual comparison, respectively. The price of these products did not only go up in Estonia, but also in many other European countries. The developments in food prices may continue to be adversely impacted by global market developments, where the price fall has continued in previous months. For example, data from the Food and Agricultural Organisation show that the price of dairy products declined by 7% in July over the month. Dairy product prices rose rather rapidly in recent years, but have now slide back to the levels seen in 2009.


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