Inflation continues to be driven by rising energy prices
Economist at Eesti Pank
Inflation in August remained at its rate of July as consumer prices were up 5% over the year.
Energy prices rose a little more slowly and were 17% higher than a year previously, but they still provided half of total inflation. Prices on the electricity exchange hit new record heights in August and remained high at the start of September. The oil price started to rise fast in November 2020, meaning that the impact of the rise on consumer prices will last for some time yet in yearly comparison.
Prices for food products were 2% higher in August than in the same month of last year. The rise in food prices did not play a very large part in overall inflation, but people perceive changes in the price of food products immediately from their day-to-day shopping. They also perceive them because food products, including alcohol and tobacco, are a large part of total consumer spending at just below a third.
The rental market saw the addition during the pandemic of long-term residential properties that were previously intended for short-term rent, and this caused rent prices to fall. Rents started to rise again at the start of this summer though and the yearly growth in rents was above 13% in August. Travel and accommodation services have started to recover as a share of consumption, and so prices for them are continuing to rise to where they were before the pandemic. Prices for package holidays and accommodation were 20% higher in August than a year earlier.
The recovery from the pandemic will stimulate demand around the world, but the price level in the coming months in Estonia may be further affected temporarily by the money withdrawn from the second pension pillar, which reached consumers in the first days of September. The sharp jump in purchasing power coincides with the rapid recovery from the pandemic, and as the availability of some goods like electronics and cars is affected in places by shortages of production inputs and interruptions in the supply chain, there may be additional temporary price pressures for some groups of goods and services.
Eesti Pank will publish a new economic forecast, including an inflation forecast, on 22 September.
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