Data from Statistics Estonia put yearly consumer price inflation in April at 2.8%. Inflation in Estonia remains above the euro area average, and the rise in VAT in January will keep it higher in Estonia until the end of the year. Inflation without the tax rise this year would have been 1.3% in April, which is the same as in Latvia, while inflation in Lithuania was even lower.

The price of electricity, which has been very volatile in recent years, was lower in April than it was a year earlier. The price of natural gas for household consumers was also lower. Cheaper energy meant that housing expenses were lower overall, and because of their substantial weight in the consumer basket, this helped to tame inflation in April. Manufactured goods were 2.2% more expensive than a year earlier, and prices for food goods rose by the same amount.

Core inflation, which strips out the volatile prices of energy and food, was 5.4% over the year, and 1.3% from March. A large part of this came from various services, including transport services. Services probably rose in price because labour costs increased and rising wages were passed on to consumers. The strong rise in the prices of airline tickets shows that residents of Estonia have started travelling again, and that demand for tickets has increased. Tallinn airport served more travellers in January to April this year than it did in the same months of 2019, before the pandemic.

The higher rate of VAT continued to be passed through into the end prices of goods and services in April, as the tax rise only had a partial impact on prices at the start of the year. However, there has been rapid growth in recent months in the share of businesses that expect prices will remain unchanged in the near future. At the start of the year, 62% of retailers surveyed by the Estonian Institute of Economic Research expected prices to rise in the next three months, but in April this share had fallen to 36%.

There are additional factors that may restrain inflation in the near term. Oil is around 10% cheaper than it was a month ago, which may bring retail prices down a little as well. The price before tax of petrol and diesel fuel at filling stations in Estonia is currently one of the highest in the European Union. Labour market indicators have also deteriorated a little at the start of this year, which may make people more sensitive to prices. Unemployment rose to 8% in March, which is around the level that starts to restrict demand and rises in prices.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: 5692 0930
Press enquiries: [email protected]