Food was the main driver of inflation in December
Economist at Eesti Pank
Yearly inflation slowed to 17.6% in December according to Statistics Estonia. Food products, which include alcohol and tobacco, were 25% higher in price, while prices were up 24% for energy and 12% for manufactured goods and services. The price level was 0.1% lower than in November.
The biggest factor driving inflation in the consumer basket in December was food. The data for December do not yet show any indication of the rise in food prices easing. Some sign of inflation slowing was however given by a sharp drop in the price of butter and powdered milk on the European Union market in recent weeks. Such a drop is usually followed some time later by slower growth in consumer prices.
The broadly based fall in energy prices on commodities markets continued in December. Energy prices have been falling since August, as the countries of Europe have sufficient reserves of natural gas for the winter. The fall in price has also been facilitated by the warmer weather.
The loss of purchasing power of wages is increasingly expressed in cautious demand. Consumers have not been able to keep pace with inflation in recent months, and retail sales volumes have started to fall. The sharp drop in industrial output indicates that businesses are not able to raise prices as fast as before. The number of companies planning to reduce staff numbers has consequently overtaken the number planning to hire additional staff.
Inflation fell in December in the larger countries of the euro area by more than expected. The inflation risk from the external environment will remain large moving forwards, as inflation was kept down to a large degree by the temporary measures taken by governments to rein it in. Central banks are equally continuing to raise monetary policy interest rates to reduce inflation.
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