High inflation will reduce purchasing power
Economist at Eesti Pank
The consumer basket was 15.2% more expensive in March than a year earlier. The biggest driver of the inflation was energy prices, which were up 54% over the year. Prices for electricity and gas were some 70% higher even though the government had set a price ceiling for them. Motor fuels were up 44% over the year in March as the reduction in supplies of oil from Russia has not yet been fully replaced on the global market.
Food prices have risen particularly fast in Estonia for fruit and vegetables, which are 22% more expensive. As most supplies of fruit and vegetables in Estonia come from elsewhere, the long supply chains may have increased inflation for imported food products. At the same time, the output of grain and dairy products in Estonia has substantially exceeded consumption. When prices for food commodities are rising, Estonian producers can export dairy products at higher prices. As the output from Russia and Ukraine disappears from international markets, upwards pressure on prices will remain, meaning that food prices will probably rise further. Competition in the Estonian retail sector has been increased by the arrival in the Estonian market of the Lidl chain. The market share of Lidl has not grown very big in neighbouring countries though.
The broadly based increase in the price of the consumer basket will reduce the real incomes of residents of Estonia this year, as wages are likely to rise more slowly than prices. Increased costs for essential expenditures will change consumption habits as consumers will have less money left over for buying services and consumption goods. Households spend an average of 15% of their incomes on energy and 28% on food.
Tel: 668 0965, 5697 9146
Press enquiries: [email protected]