Consumer prices were 6.1% higher in August than they were a year earlier. They were 1% higher than in July, with more than half of the increase coming from a rise in electricity prices. It is probable that the rise in VAT continued to pass through into consumer prices in August, as the rise in prices in July immediately after the VAT rate changed was smaller than the rise in the tax.

The exchange price of electricity was lower in August than it was a year earlier, but it was twice what it was in July because one of the electricity cables between Estonia and Finland was under maintenance in the second half of the month. Maintenance of the cable continued into September, and the restriction this put on trade in electricity with Finland, where prices are lower, meant that electricity was more expensive in Estonia.

Prices for meat, especially poultry and beef, continued to rise in August. A little over half of the meat eaten in Estonia is pork, and the price of pork has held steady for the past three years. It may become more volatile in the near future though because of disease spreading through Estonian pig farms. The slaughter of animals at infected farms will reduce the domestic supply, but on the other hand this will probably be offset by an increase in imports. Imports of live pigs increased in 2015 for example when there was an outbreak of African swine fever. The rapid rise in prices for several food commodities on global markets has stalled, and some goods like sugar, cocoa butter and orange juice have become a little cheaper.

Prices for motor fuels were lower in August than a year earlier, and petrol stations in Estonia started cutting fuel prices one after another in early September. Motor fuels are around 3.5% of the consumer basket, and so cheaper petrol and diesel help bring overall consumer price inflation down. At least one chain of filling stations terminated its promotional discount prices and announced it would instead cut fuel prices in general. Promotional prices are not reflected in the price statistics but regular changes are, and so the price cut by that chain will now have a lasting impact on the price observations.

Prices for manufactured goods were a little under 2% higher in August than in the same month of last year. The main drivers of the rise were cars and household furnishings. Prices for computers and home electronics continued to fall as the strengthening euro meant that the purchasing power of consumers increased for goods that are imported from outside the euro area.

The rise in VAT in July will continue to affect the comparison of prices over the year until the middle of next year. Estonia recorded the highest inflation in the euro area in August, while the rise over the year in harmonised consumer prices in the euro area as a whole was 2.1%. Eesti Pank forecast in June that inflation this year would average 5.4%. A new economic forecast with a new inflation forecast will be released on 23 September.

Further information:
Hanna Jürgenson
Eesti Pank
Communications Specialist
Tel: 5692 0930
Press enquiries: [email protected]