Data from Statistics Estonia show that consumer prices were up over the year by 5.3% in February. Annual inflation fell over the year in most countries of the euro area, and for the euro area as a whole prices increased by 2.4% in February.

The price of electricity has been restraining inflation in the consumer basket since last spring, but the prices on the electricity exchange were twice as high in February as they were a year earlier. Electricity is nearly 5% of the consumer basket, and so fluctuations of that size have a substantial impact on the aggregate indicator for inflation. Higher electricity prices added 0.8 percentage point to the yearly increase in consumer prices in February. However, the exchange price of electricity was lower at the start of March than it was in February and electricity should be cheaper in the summer.

Food prices continued to rise in February as the increase in the prices of food commodities last year started to be passed through to consumer prices. The price of raw milk was around 25% higher in February than it was a year earlier, which then pushed up the price of other dairy products including butter. However, prices fell at the start of this year for some commodities like orange juice, cocoa and sugar that were driving food price inflation in the second half of last year. This fall in price should soon pass through to the price of the end goods sold in shops.

The rise in prices of services came largely from transport services. The main cause of this was the introduction of the registration tax for cars at the start of the year, as the price index records this as a fee, which is a service. Holiday travel also pushed up the cost of services, but airfares fell at the same time.

The higher registration tax for cars will remain visible throughout the year in the price index. Inflation will be pushed up further in July when VAT rises by two percentage points. The rise in excise on diesel fuel in May will also push up the general price level somewhat. Movements in the prices of energy and food commodities on top of these known tax changes may result in inflation being volatile throughout the year.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
5692 0930
Email: [email protected]
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