The price drop in July was broad-based compared to June
Economist at Eesti Pank
In July, the consumer basket fell by 0.6% and price growth slowed to 6.4% year-on-year. Compared to June, both energy as well as food and industrial goods became cheaper. The largest price decrease was caused by the cheapening of natural gas and thermal energy, which dropped by 22% and 6%, respectively.
In July, food prices fell by 0.9% compared to the previous month, and the long-awaited reduction in the food basket was substantial. Food commodity prices have been declining since the start of the year, but this year’s poor crops may start slowing further seasonal price drops. Unfavourable weather conditions for fruit and vegetables have led to unusually rapid price growth this year.
The recent slowdown in inflation has also been driven by a fall in the price of durable goods, which has been helped by both the fall in commodity prices and the strengthening exchange rate of the euro. The exchange rate of the euro against the dollar has hiked by more than 10% since last September, and this has made imported electronics, in particular, cheaper. In the services sector, the decline in rental prices, which was 3.7% in July year-on-year, has had a big impact. This reflects a slump in the real estate segment. At the same time, the price growth of holiday travel and accommodation services has been accelerating in Estonia.
The slowdown in inflation will continue in the coming months. The average price growth in 2023 will be close to 9% and the rate of price increase is expected to slow down to 5% by the end of the year.
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