Inflation accelerated as expected as food prices increased

Rasmus Kattai
Rasmus Kattai
Head of the Economic Policy and Forecasting Division, Eesti Pank

Data from Statistics Estonia show that inflation in Estonia accelerated in February to 3.7% with prices 0.6% higher than in the previous month. Preliminary assessments show that inflation in the euro area slowed to 1.8% in February.

In the past couple of years the driving forces behind price rises in Estonia have been food prices and energy. Food prices rose again in February by 6%, which is faster than before as the earlier rises in global prices for food commodities fed through into Estonian prices for end-products. Among the energy sources consumed by households, the highest rise from a year earlier was in the price of electricity, which increased by 27.4% and also heat, which rose by 6.6%, while the prices of motor fuels remained similar to those of February last year. Electricity was 0.4% more expensive than in January.

Core inflation excluding food and energy prices fell to a low level, reaching only 0.7% in February. One factor in this is the drop in the prices of imported manufactured goods, which is a consequence of weak demand in the euro area as a whole. Core inflation was also restrained by services, especially by the cheaper prices for communications and public transport. Some acceleration in the prices of services may be expected in the near future as a result of wage rises.

 


The primary role of the central banks of the euro area is to maintain inflation in the euro area at below but close to two percent over the medium term. The fact that Estonia's inflation is slightly higher than the euro are average is to be expected and is a consequence of faster economic growth and the harmonisation of relative incomes with those of the euro area.

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