The rise in consumer prices over the year slowed to 4.2% in February. The price level was unchanged from January, as lower prices for electricity and gas offset the seasonal rise in the prices of manufactured goods and the consumer basket of services.

Electricity has caused a lot of volatility in prices in recent months. The market price of electricity hit an intra-day record in Estonia at the start of January of 890 €/MWh. It then dropped in February and early March to be quite cheap relative to prices in recent years at close to 70 €/MWh. A large number of consumers in Estonia still buy their electricity at the price of the universal service though, which is notably higher than the market price at 154 €/MWh. the price of electricity may fall once it is no longer available as a universal service from May, which would have a notable effect on the consumer price index.

Food prices were most directly affected in February by the higher VAT rate that applied from the start of the year and the rise in excise on alcohol. Although taxes have risen, the increase in the price of food has slowed further. The fall in the price of agricultural commodities has gradually passed through into the price of food in shops. Prices for agricultural commodities started to fall at the beginning of last year, but companies in the food products industry focused last year on recovering their profitability. The profits of those companies finally gave way in the fourth quarter though. In 2023 as a whole, food wholesalers earned almost the same amount of profit as farmers, food processors and retailers put together.

The effect of the rise in VAT is only partially evident in the prices of manufactured goods. Car sales were up at the end of last year in anticipation of the rise in VAT, but increased demand did not cause prices to rise faster. Inflation was restrained in January by large discounts for clothing and footwear that made the consumer basket cheaper by 0.3 percentage point over the month. Some prices returned in February to their earlier levels.

Inflation for services has picked up in recent months as transport services and medical services have become more expensive. Services were 5.7% more expensive in February than they were a year earlier, though the rise in VAT affected the prices of services less than it did the rest of the consumer basket. Some services like rent, medical services, education, and insurance and banking services were untouched by the increase in VAT.

Eesti Pank forecasts that the consumer basket will rise in price by an average of 3.4% in 2024.

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