Inflation continues to rise
- The price of fuel has lifted inflation and will continue to have an effect
- Cheaper imports and slower growth in demand have kept inflation in check
Yearly growth in consumer prices rose in November from 0.6% to 1.0% according to Statistics Estonia. Although inflation has risen in recent months, the cost of the consumer basket for the year as a whole remains close to its level of 2015 because of the earlier fall in prices. The harmonised index of consumer prices put inflation in the euro area at 0.6% in November. The most recent comparable data for Estonia are from October, and they put the harmonised index of consumer prices at 1.0%, which was one of the highest rates in the euro area.
Rising prices in November were led primarily by food prices. Higher prices for alcohol and tobacco products due to rises in excise rates in the first half of the year had a particular impact. The consumer price index has been raised since September by higher prices for motor fuels, as fuel prices were some 4% higher in November than a year earlier. The impact of the price of motor fuel on the general price level will probably increase further in the near future, as the price of crude oil rose on global market by 16% in dollars and almost 17% in euros in the last days of November and the start of December. As the oil price passes into Estonian consumer prices immediately through motor fuels and through other goods and services, its impact is quite large, so if the oil price were to remain at its current level it would add 0.5-0.6 percentage point to inflation. The past month has shown though that the oil price is very volatile, and it can change a lot in a short time.
Core inflation, which is the rise in prices of services and manufactured goods, has been low in 2016. Prices for manufactured goods have changed very little in Estonia as imported goods have been falling in price for a long time, and this offsets the rise in domestic prices, which has primarily been caused by higher labour costs. Growth in the average wage remains high despite slowing, but as households prefer to save more than previously, the demand-side pressures on prices have weakened, which is also shown by slower growth in retail sales. In turn, low inflation expectations lead to higher savings. Inflation for service prices has also fallen alongside that for manufactured goods, and service price inflation has been more volatile than usual.
Eesti Pank will publish a new inflation forecast on 13 December 2016.