Uncertainty in commodities markets is causing strong price pressures
Economist at Eesti Pank
The consumer basket rose in price by 12% in February. Prices were up on the year by 36% for energy, 11% for food products and 6.3% for consumption goods and services. The outbreak of war in Ukraine increased tensions in commodities markets. This has particularly affected the price of natural gas and the electricity produced from it.
The economy has been performing well, but high inflation may start to slow economic growth down. Production by companies is affected by the decline in the Russian economy, as access to commodities is hindered and export opportunities are restricted. This may cause a short-term rise in prices until alternative suppliers are found. Growth in the Estonian economy will receive a boost as higher natural gas prices make oil-shale energy more competitive. The price of CO2 quotas has fallen in recent weeks.
The rapid rises in the prices of energy and food will reduce the capacity of households to consume. They will have less money left over for buying services and consumption goods. Households spend an average of 15% of their incomes on energy. If energy prices remain high for a longer time, uncertainty will increase and so households and businesses will become more cautious. The government has taken additional measures to ease the impact of high energy prices on consumers. The prices of electricity, natural gas and heat are limited under a price ceiling until spring.
Inflation overall remains high and broadly based. Two thirds of the consumer basket was up by 5% or more in price in February. Prices have come down for some goods and services though. Such falling prices made up 8% of the consumer basket in February. The main falls were in prices for communications services and information equipment, as rapid technological development helps bring prices down.
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