Data from Statistics Estonia show that consumer prices were up 1.5% over the year in August. The biggest contributor to the rise in prices was energy. Food prices were down by 2.6% however, with prices for dairy products falling further having done so throughout the first half of the year. This resulted from increases in production throughout Europe in response to the earlier high prices. Prices also fell for meat products and for seasonal goods like fruit and vegetables.

Inflation was driven in August by prices for fuels as motor fuels become more expensive again. The crude oil price is not as high as it was in spring after the war started between the USA and Iran, but the refining margins on fuels have increased sharply. Europe relies on external suppliers for its diesel, and imports of diesel have been interrupted since the spring. Increased demand in the second half of summer also led the refining margin for petrol to increase.

The market price of electricity was a quarter lower in August than a year earlier, but the final price for consumers rose a little. This was probably mostly because of fixed-rate packages being more expensive, and also to some extent because fees were introduced in January for the frequency reserve and security of supply.

Estonia has stood out among other euro area countries since the spring for overall inflation falling consistently. This is primarily because the earlier rises in taxes no longer impact the inflation statistics. The motor vehicle tax that was introduced last year, the rise in VAT, and to a lesser degree the rise in excises added around 2 percentage points to inflation last year, and VAT being raised in the middle of the year meant its impact remained until June this year. The reference base was consequently high, and so inflation has been lower this year as a result.

The second important factor is that inflation for food products has stopped accelerating and has started to come down, with prices for food and non-alcoholic drinks rising more slowly since the start of the year, and actually falling for two months in a row now. As food products make up 22% of the consumer basket, the dynamics of their prices have a substantial influence on overall inflation. Prices have also been falling in Estonia, unlike in most euro area countries, for a lot of imported manufactured goods like clothing and footwear. Inflation for services has also fallen steadily this year to 2%, having reached 10% last year.

Overall, inflation has fallen for food and manufactured goods and for services. It is not impossible though that there will be more uncertainty about prices for fuels in the coming months. Inflation in August in Latvia meanwhile was 2.9% and in Lithuania it was 5.8%.

The forecast published in June by Eesti Pank expects inflation in Estonia for the whole year to be 3.4%. The next forecast will be published on 22 September.

Additional information:
Hanna Jürgenson
Eesti Pank
Communications officer
Tel: 56920 930
Press enquiries: [email protected]