The impact of food on price rise is easing
According to Statistics Estonia, the consumer price index increased 0.3% month-on-month and 5.3% year-on-year in November.
This year's price growth has mostly been caused by administered tax rises and food. Food commodity prices continue to be volatile in the global market. The price growth of cereal products made a notable contribution to Estonia's inflation in November. The current level of commodity prices does not justify the higher consumer prices of some food products compared to 2008. Thus, upward price pressures on food are expected to ease in Estonia.
Domestic trade indicators show that along with growing global-market prices and export volumes, also the trade margin increased year-on-year in the third quarter of 2010. This contributed to the more pronounced pass-through of the growth in food commodity prices to consumer prices. The average wholesale trade margin on food, beverages and tobacco, which accounted for 14% in the third quarter of 2009, is now 2 pp bigger. Higher mark-ups helped raise profit, which was one of the highest for wholesalers in the third quarter. The more rapid price growth of food is temporary. Experience from the period 2006-2008 shows that the very sharp increase in consumer prices due to more expensive food commodities may be followed by them coming down again.
Leaving food and energy aside, the rest of the consumer-basket inflation has been subdued, making up 0.9% year-on-year. Although the labour market has slightly picked up from the low of the start of this year and the general economic activity has also improved, prices should not be raised thoughtlessly.
Eesti Pank publishes the updated inflation forecast in the second half of December.
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