Record energy prices mean inflation will not come down in the near future

Autori Sulev Pert pilt

Sulev Pert

Economist at Eesti Pank



Yearly inflation reached 8.8% in November as the price level stood 1.8% higher than in the previous month. Inflation has been rising faster and become more broadly based in Estonia this year, and it is now being driven by food products as well as by energy and manufactured goods. It is still the rise in energy prices that is pushing up the cost of living the most though, as around half of the increase in the cost of the consumer basket has come from electricity, gas and motor fuels.

Energy prices continue to rise rapidly, as the price for electricity was 49% higher in November than a year earlier, while the cold weather in early December lifted it temporarily to new record levels. Higher electricity prices affect inflation directly and also indirectly through the cost of many other goods and services, but this impact will only be apparent in the coming months.

Electricity costs are on average 0.8% of the total expenditures of businesses. Their share in total expenditures is largest at around 10% in paper production and water supply. High electricity prices may push some companies to reduce production or to pause it, because higher costs cannot always be passed on into end prices for products. The price of natural gas was up 60% over the month, and this will soon pass through into the price of heating energy. The largest single leap in prices is expected to come in December.

Eesti Pank will publish a new economic forecast on 21 December 2021.

Additional information:
Ingrid Schmuul
Communications Specialist
Eesti Pank
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