Inflation will remain higher until the summer
Economist at Eesti Pank
Inflation remained at its high level of recent months in March. The rise of 1.1% in consumer prices was driven most by the higher electricity price, which was 18% more than in March last year and contributed 0.6 percentage point to total inflation.
Inflation in Estonia in March was still below the average for the euro area, where the rise over the year in consumer prices was 1.3%. The falls in rent prices and prices of accommodation in Estonia have been steeper than those in other countries, with rents down 9% over the year and accommodation prices down 8%. Tourism services that saw prices rise a little in March were package holidays and air tickets.
Inflation will start to be driven upwards in the coming months by the major fluctuations in the oil price on global markets. The oil price started to fall steeply in the second quarter of last year when the coronavirus crisis started. The price level of oil on global markets has by now climbed and is accelerating the yearly rise in consumer prices. Energy prices make up 12% of the consumer basket in Estonia, which is a larger share than the average of 9% in the countries of the euro area, and so fluctuations in the oil price are felt more strongly in Estonia.
The Eesti Pank forecast expects that inflation will pick up in the coming months to approach 2%, and so will be faster than the average in the euro area. Average inflation for this year is forecast by the central bank at 1.6%.
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