The impact of VAT-rises on annual inflation withdrew in July
Martin Lindpere, Eesti Pank, economist
According to Statistics Estonia, the CPI basket became 0.3% more expensive in July and inflation declined to 2.9%.
July is the month of seasonal discounts, and usually the prices of durable goods and clothing are dropped the most at sales. Clothing and footwear cheapened 2.6% on June, whereas the price decline was slightly more than 3% a year ago. Summer discounts are notably larger in many other countries in Europe.
Food prices went up by 1.3% last month, which is considerably above the average July price increase of the past ten years. The retail prices of food have been high due to poor weather conditions at the start of the year. Higher prices in external markets have added impetus to food exports.
Economic activity has been improving since the start of the year, but inflation in Estonia is low as a result of the deep recession of previous years. Leaving aside food and energy, which are most affected by external factors, inflation is still very subdued as regards the rest of the consumer basket, making up 0.7% year-on-year.
The impact of VAT-rises on inflation withdrew in July, adding volatility to the annual inflation.
The effect of the tax measures taken to improve the budgetary position is subsiding, which means the rate of inflation in Estonia continues to slow. However, weather conditions are exerting a pressure on food prices in the global market and this may pass through to local prices in the months to come.
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