The rise in consumer prices over the year accelerated to 5% in June, mainly because of increases in prices for food, and also in those for services.

Prices for milk and meat started rising rapidly last year, but prices for raw milk and beef on international commodities markets have stopped increasing in recent months, and so retail prices may be expected to stop rising as well. Services prices were pushed up particularly by package holidays and accommodation services.

The registration fee for vehicles is having a notable impact on inflation, as it has added an estimated 1.2 percentage points to it throughout this year. This contribution to the growth in the price index appears to overestimate the actual costs for consumers and the rise in the cost of living though, as the initial registration tax for vehicles that enters the consumer price index has collected a little over 14 million euros in six months, or around 0.14% of spending on private consumption in half a year. Legal entities also pay the registration fee, and so the cost of it to households is even smaller. Current trends indicate that the total received in registration fees for vehicles this year will probably be lower than the 137 million euros initially planned.

Inflation in June was held down by cheaper energy. The exchange price of electricity was 55% lower in June than it was a year earlier. This was helped towards the end of the month by the Estlink 2 cable returning to operation, which allowed more electricity to be imported from Finland. Estlink 2 was not operating last summer. Wind and solar parks in Estonia have also increased their production capacity from last year by around 600 MW, and so favourable weather brings down the price electricity. The jump in the oil price in June provoked by the military conflict between Israel and Iran proved short-lived, and so the prices of liquid fuels were similar to what they were a year ago.

Tax policy will also shape prices in the second half of the year. VAT rose to 24% at the start of July, which will lift prices for the year as a whole by an additional 0.7 percentage point or so. Excise on petrol also increased, and that will combine with higher VAT to raise the price of a litre of petrol by around six cents.

Inflation in the euro area was 2% in June, which is in line with the long-term monetary policy target of the European Central Bank. Rises in various taxes are steering inflation in Estonia this year, but even without the tax rises the rate of inflation in Estonia in the first half of the year would have been among the highest in the euro area, exceeding the rates in Latvia and Lithuania among others. Eesti Pank is forecasting that inflation for the year as a whole will be 5.4%.

Additional information:

Viljar Rääsk
Head of Communications
Eesti Pank
6680 745, 5275 055
Email: [email protected]
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