Prices continued to rise rapidly in September
Economist at Eesti Pank
- Inflation is due to higher prices for food and energy and rises in excise
- The consumer price index was 0.1% lower in September than in August because of seasonal factors
Data from Statistics Estonia show the consumer price index was up 3.7% on the year in September. Despite slowing slightly from August, inflation remained elevated because of both higher import prices and domestic factors.
Food prices were up 7% in September and energy prices 6%, mainly because of price developments in global markets. The oil price rose to 57 dollars a barrel by the end of September, because demand for oil has recovered slightly while supply remains constrained by the agreement between OPEC members. The yearly growth in the oil price in euros has been relatively modest, because the euro has appreciated against the dollar at the same time. Around one percentage point of the inflation in the consumer basket this year has been due to rises in excise. Higher tax rates will continue to contribute to inflation of food and energy prices in the next year, but the impact of the pass-through of commodities prices should start to ease gradually.
Factors in the domestic economy have also encouraged prices to rise this year. Core inflation in manufactured goods and services, which depends mainly on domestic factors, stood at 1.3% in September. Wage growth has remained strong in Estonia, and this has induced higher production costs. Increased production volumes and a rise in the price level have together allowed companies to restore their profits again for the first time in a few years.
Inflation in the euro area remained at 1.5% in September, which is below the 2% inflation target of the European Central Bank. Inflation has been restrained by the unexpectedly low wage growth in the larger countries of the euro area in contrast to other activity indicators of the economy. The unemployment rate has now fallen to its levels of before the crisis, and faster economic growth has also supported inflation in the euro area. Slow growth in labour costs for companies in the euro area has so far offset higher prices for other production inputs including commodities.
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