Inflation will continue to slow in the coming months
Economist at Eesti Pank
Data from Statistics Estonia show that consumer prices were up 18.6% over the year in January. Inflation in January mainly reflected the leap in prices in the first half of last year, as the price level of the consumer basket has remained more or less unchanged since August.
Yearly inflation for food amounted to 24% in January. The new price pressures came from prices rising for meat products, and from sales promotions on alcohol ending. Food prices may soon start to come down since the prices on the European market for several agricultural products, including cereals, butter and milk powder, have moved below their record highs. It takes time for lower commodities prices to pass through into consumer prices, so the food basket will on average become one tenth more expensive this year.
Energy prices were 33% higher than a year earlier despite the state support that held rising prices in check. Market prices for gas and electricity have fallen in recent months, and so there was less need for compensation and also less cost pressure on the state budget.
Core inflation, which is more persistent and does not include food or energy, is not yet showing any sign of coming down. There were fewer discounts offered this year for clothing and shoes than a year earlier. Communications services providers have raised prices among services. Overall demand pressure on prices is weakening because households are continuing to restrict their spending on consumption. The gradual decline in inflation will continue in the coming months, and Eesti Pank forecasts that annual inflation will average 9.3% this year.