Inflation has been slowed by the cooling global economy
Economist at Eesti Pank
Data from Statistics Estonia show that yearly inflation slowed in February to 2%, meaning it was 0.8 percentage point lower than in January. Inflation was mainly slowed by external factors like slower growth in the global economy and political uncertainty, but it was also affected by the high reference base of a year ago.
Commodities prices in US dollars on world markets were 4-5% lower in February than a year earlier because prices fell for oil and for food commodities. This has only had a modest impact on import prices though because of a depreciation of 7% in the euro. Domestic prices, especially prices for services, have been driven up by the strong wage growth of 8.9% and the low unemployment rate, which was down to 4.4% in the fourth quarter.
The deceleration in inflation over the year is also due to the high reference base of last year, since current inflation reflects to a great extent the price developments of the past year. Excise rates rose for alcohol and motor fuel at the start of last year, and the impact of this on consumer prices is gradually disappearing. In the coming months, the strong base effects in electricity prices stemming from the sharp rise in price on the Nordic exchanges in last year will be passed out. Eesti Pank forecasts inflation in 2019 will be 2.6%.
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