The share of electricity in production costs should not give rise to broad-based price growth
Head of the Economic Policy Division, Eesti Pank
As had been expected the consumer price index underwent a one-off jump in January. The price level increased by 0.7% from the previous month and price growth was 3.4% in annual terms. The price of electricity was 23.6% more expensive for households in January than in December, while the consumer basket excluding electricity became some 0.2% cheaper. Another factor contributing to inflation besides electricity was the alcohol excise. The seasonal fall of 4.9% in the price of clothing and footwear had a counterbalancing effect. Core inflation fell as the consumer basket without energy and food became 1.0% cheaper in January. This was greatly affected by the 9.9% fall in the cost of public transport.
Data from the Estonian Institute of Economic Research show that companies are expecting sales prices to increase faster over the next few months. Since the share of electricity in the total costs of companies is on average 1%, the price of electricity should not give rise to broad-based inflation, especially because the electricity market was already opened to large consumers in 2010.
Eesti Pank’s forecast expects this year’s average HICP growth will be 3.6%. This estimate rests on the assumption that the level of commodity prices will not change much. Eurostat’s flash estimate shows that inflation in the euro area slowed to 2.0% in the first month of the year. The joint forecast of the central banks of the euro area expects the average inflation rate for the euro area to remain in the range of 1.1–2.1% in 2013.
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