Inflation pressure is strengthening because of the external environment
Economist at Eesti Pank
The largest part of the inflation of 3.6% over the year in May was caused by rises in motor fuels and electricity prices. The monthly rise in prices was fast at 0.9% and was broadly based.
Higher inflation is an indicator of strengthening inflation pressures coming from the external environment, and also of growth picking up speed in the Estonian economy. A new factor that appeared in May alongside the 14% rise in energy prices was the increase of 4.9% in the price of durable goods. The main price rises among durable goods were for transport vehicles, home furnishings and home electronics. Strong demand has caused supplies of some goods to run low in warehouses, and logistics problems have made transport from Asia more expensive. It may be assumed though that the production and supply difficulties are temporary and will ease soon.
Surveys by the Estonian Institute of Economic Research in recent months have shown that the inflation expectations of local manufacturers have also climbed rapidly. The prime factor limiting output in manufacturing and construction has been a shortage of materials.
Yearly inflation in services prices accelerated to 2.5% in May, but this came mainly from the ending of the discounts for kindergarten fees.
Inflation will slow in the coming months because of the high reference base for energy prices. More expensive food products and rises in the prices of accommodation services and rent towards their pre-crisis levels will start to contribute to inflation in the second half of the year.
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