Yearly growth in consumer prices stood at 11.3% in May according to Statistics Estonia. Inflation continued to slow for energy, food products and manufactured goods, but various services rose in price at a faster rate.

Yearly growth in energy prices dropped to 3% in May. Natural gas was 43% cheaper than a year earlier and motor fuels were down 14%, but heat remained 11% higher in price. Future transactions indicate that gas prices may rise a little by the end of the year, but the market for wood chips is expecting prices to fall. That should make heat start to become cheaper by the next heating period.

Prices of some food goods have fallen since the end of last year in places, and the lower prices have passed through into shop prices for dairy products. Merchants have not yet noticeably adjusted their prices even though demand for food products is down 8% on the year.

Service price inflation accelerated to 11.5% as rents, medical services and public transport rose in price. Rising prices for services are driven to a large extent by labour costs, and wage growth has remained strong despite the downturn in the economy.

Price pressures will start to be reduced by the downturn in the Estonian economy and demand will be reduced as the additional savings of households run out. It is hard for businesses to raise their prices in a recession and to cope with rapidly rising wages. Instead of raising prices they must sacrifice a part of their profits, and if difficulties persist they may need to optimise their production and cut jobs.

Eesti Pank will publish an updated economic and inflation forecast on 20 June.

Additional information:
Hanna Jürgenson
Communications officer
569 20930
Email: [email protected]
Press enquiries: [email protected]