Data from Statistics Estonia show that consumer prices were up 4.2% over the year in October. Some two thirds of the increase came from prices rising for energy, especially motor fuels. Motor fuels have been driving inflation since war broke out in the Persian Gulf in spring.

The European Union is an importer of diesel and so the steep drop in supplies of oil and oil products from the gulf states has pushed the price of diesel up more than that of petrol. Refining margins for diesel increased further at the start of November, indicating shortages of diesel, and the wholesale price of diesel has not fully matched the recent modest fall in the price of crude oil. The most expensive fuel in the Baltic states in October was in Lithuania, while the price levels for diesel and petrol in Latvia and Estonia were quite similar.

The exchange price of electricity was a little lower in October than it was a year earlier, and it was lower in Estonia than in Latvia or Lithuania. An obstacle to prices harmonising across the three states is that some of the transmission capacity between Estonia and Latvia is being held as frequency reserve. Electricity was 4% more expensive for consumers than it was a year ago. End prices for consumers have been raised this year by the fees for the frequency reserve and security of supply, and by the rise in network fees in the summer. More than half of household consumers have signed fixed-price electricity contracts, and so fluctuations in the exchange price do not directly affect their electricity bills. The exchange price may rise further in the coming months because the low water levels in reservoirs in Norway and Sweden will limit their exports of cheap hydroelectricity. The high price of natural gas pushes the electricity price up on days when there is little wind, because more electricity is supplied from gas-fired plants on those days.

Among food products, meat and dairy products again fell in price in October, while prices for unprocessed food rose the most, including those for fresh vegetables, which were up some 30%. The rise was a consequence of poor harvests last year in Poland, Spain and the Netherlands, which are the largest vegetable producers in Europe. This also affects Estonia, where some 60% of the vegetables consumed are imported. Transport costs can also drive up the price of goods supplied from further away. Domestically grown potatoes meanwhile are cheaper than they were last year.

Core inflation without volatile food and energy prices remained at 1.8% in October. This indicates that inflation in Estonia is currently being affected most by external factors, and that after several years of rising prices, merchants are no longer finding it easy to pass higher prices on to their clients.

Higher energy prices in the coming months could raise inflation moving forwards. Eesti Pank forecast in September that inflation for the whole year would be 3.1%. A new forecast will be published in December.

Additional information:
Hanna Jürgenson
Eesti Pank
Communications officer
Tel: 56920 930
Press enquiries: [email protected]