Data from Statistics Estonia show that consumer prices were 4.4% higher in March than a year earlier. Inflation was pushed up by higher prices for services and food, but was eased by prices falling for electricity and motor fuels. The rise in the price of the consumer basket over the year without the effect of energy would have been 5.4%.

Electricity has caused a lot of volatility in prices in recent months, as the price of it rose sharply in February but then fell in March. The long-term trend in energy prices of motor fuels becoming cheaper continued. A barrel of oil cost 120 dollars at the peak of the energy crisis in the middle of 2022, but the price has gradually descended since then. The fear of a trade war sparked by the US customs tariffs brought the price of crude oil down to close to 65 dollars in April, and the effect of that will soon be felt in consumer prices. Cheaper energy will improve the purchasing power of households because energy accounts for 15% of spending by households on consumption.

Prices for food products continued their broad-based rise in February as inflation for them increased to 6.7% over the year. Inflation is high for food products because of the earlier rise in commodities prices, as it is apparent that food prices on global markets have now stabilised or are falling.

Increases in prices for manufactured goods remained slow, indicating that demand is weak and consumers lack confidence. Households have cut back on spending on clothing and footwear, for which prices were down 3.4% over the year.

The yearly rise of 8.8% in the prices of services was driven largely by transport services. This came mainly from the introduction at the start of the year of the registration tax for cars, which will remain visible throughout the year in the higher cost of living. It may be assumed though that cheaper fuel will restrain the rise in prices for transport, and tickets for travel by air or by ship were 9% cheaper in March than a year earlier.

Inflation will be pushed up in July when VAT rises by two percentage points. Excise on petrol and diesel fuel will also push up the price level in the coming months, though to a smaller extent. Inflation may also be volatile because of the trade war started by the USA. Higher customs tariffs will hurt exports and slow inflation, though defensive tariffs in Europe may push inflation up in some sectors.

Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: +372 5692 0930
Press enquiries: [email protected]