Inflation was faster in November because of motor fuels and food
- Inflation was at its highest in November since March 2012
- Food price inflation has not yet disappeared
- Faster growth in the economy has allowed companies to raise prices
The yearly growth in the consumer price index increased to 4.2% in November. Food prices were 8.8% higher than a year earlier and energy prices were up 5.9%, but core inflation stood at 1.5%. Inflation was higher in November than in October mainly because of a rise of 8% in prices of motor fuels.
A lot of food products have risen in price over the year, above all butter and dairy products. The dramatic rise in prices for dairy products on global markets has now come to a halt or even gone into reverse, but it takes time for such changes to be felt in Estonian consumer prices. Inflation for food products will be kept high in the short term by new rises in excise on alcohol and tobacco products, which will come into force at the start of 2018.
The current state of the economy has allowed companies to raise prices. Inflation depends primarily on demand for goods and services and on rises in production costs. Strong demand throughout the past year has kept GDP growth fast and the share of companies whose activities are limited by demand has declined. For this reason it has been easier to raise prices. At the same time there has been an increase in the share of companies whose activities are restricted by labour shortages. Companies are having to compete ever harder for workers, with the consequence that wages have risen rapidly in many sectors. The average wage rose by 7.4% on average in the third quarter, which has significantly increased costs and forced companies to raise prices.
Inflation in the euro area remained low in November at 1.5%. The monetary policy of the European Central Bank expects inflation in the euro area to pick up to close to 2%. Achieving this goal assumes a further strengthening of domestic demand and faster growth in wages throughout the euro area.
Eesti Pank will publish a new inflation forecast on 13 December.
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