Data from Statistics Estonia show that growth in the Estonian consumer price index slowed in August from 3.4% to 2.9%, while prices in Estonia remained unchanged from July. The initial estimate for the euro area shows inflation slowing in August from 1.6% to 1.3%.

Inflation in August was faster in Estonia than in the euro area as a whole mainly because of the rise in electricity prices, which were up 28.4% on a year earlier. If the electricity price is taken out, then the remainder of the prices in the consumer basket rose by a moderate 1.8%. The summer’s rapid rise in  vegetable prices also ceased in August, and vegetable prices were 16% lower than in July. The rise in prices of unprocessed food has been kept in check by lower prices on global markets than those of last year, though prices for processed food products, especially dairy products, have risen significantly on international markets and the impact of this has not fully passed on into Estonian consumer prices yet.

Energy was 4.9% more expensive for households in August than a year earlier in consequence of the rise in the electricity price. A fall of 4.7% from a year before in the price of motor fuels helped to restrict the rise in energy prices. The risk has increased of an acceleration in the growth of energy prices and depends on the solutions adopted to the issues in Syria and how this affects the world oil price.

Core inflation, with food and energy prices excluded, fell in August to 1.2% as prices of manufactured goods rose by 1.3% and those of services by 1.1%. Core inflation may be considered low, given that statistics for the second quarter show labour costs rising by 8%. Companies have so far mainly financed rapid wage growth by reducing profits, but this has been done relatively less in sectors that are oriented to domestic demand, notably real estate and retail trade. In this context, prices for services other than communications rose by 4.2% year-on-year.

Eesti Pank’s economic forecast published in June expects that consumer price inflation for 2013 will be 3.0% in Estonia. 

The primary role of the central banks of the euro area is to maintain inflation in the euro area at below but close to two percent over the medium term. The fact that Estonia's inflation is slightly higher than the euro area average is to be expected and is a consequence of faster economic growth and harmonisation of relative incomes with those of the euro area.

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Ingrid Mitt
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