Inflation is being driven by higher global prices for raw materials and imported goods
Economist at Eesti Pank
The consumer purchase basket rose in price by 1.1% in July and was 5% more expensive than a year earlier. The price level in Estonia has risen by more than 2% in the past two months and inflation has become broadly based, building not only on energy prices, but also on durable goods and tourism services.
The main factors behind inflation in July were again the higher prices of electricity and crude oil and the consequent rise in prices of motor fuels. Energy prices were 22% higher than a year earlier, accounting for around two thirds of inflation. Imported natural gas will rise in price with a lag in the autumn and so heating will become more expensive. The price level of crude oil has largely stabilised in recent weeks and it is hoped that this will stop inflation climbing further from its current rate.
The yearly inflation for industrial goods was 2.9% in July. Prices rose rapidly for construction materials, domestic furnishings and used cars. Estonian manufacturers are trying to restock their exhausted warehouse supplies and so their capacity utilisation rate is at a record 81%, though shortages of materials are preventing an expansion of production. At the same time the discounts for clothing and shoes during the July sales were larger this year than they were last year.
Service price inflation was supported by a recovery in tourism as the virus crisis eased. Data from Statistics Estonia show that package holidays, air tickets and accommodation services were over 20% more expensive in July than a year earlier. The general rise in wages is no longer as slow as it was last year.
Inflation will be held up in the coming months by higher prices on the global market for raw materials and imported goods, but the Eesti Pank forecast finds that inflation will be a little lower next year than it is at present.
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