Data from Statistics Estonia show that consumer prices in November were 3.7% higher than they were last year. The price level was 0.4% lower than in October, mostly because air tickets became cheaper. Inflation over the year remained high though for services at 7.4% and food products at 5.6%, but overall inflation was held down by a fall of 4.7% in energy prices. Energy prices have fallen most over the year for motor fuels, which have come down 7%, while electricity prices have been 5% lower than a year earlier because the weather has not been as cold.

The large rise in prices in recent months has been caused by higher prices for food commodities on global markets. Inflation for food is becoming more broadly based. Prices for coffee and juice have reacted particularly strongly to price moves in global markets. The rise in prices of dairy products may soon be translated into notably higher prices in the European market. Inflation in export markets has benefited Estonian food producers, who have regained profitability from higher prices and increased sales volumes. Retailers have generally resisted rising prices for food this year. Markups in food retailing are relatively high, but profitability is low because costs, particularly wage costs, have risen faster this year than sales revenues.

Wage pressures driven by the state of the labour market will be key for steering the future path of inflation. Wage rises have not been notably restrained by the recession dragging on for over two years, while unemployment has risen only mildly. The forthcoming tax rises may increase wage demands, and that will then slow the rate of fall in inflation.

Eesti Pank forecasts that the consumer basket will rise in price by an average of 3.5% this year. Price movements in December are generally driven by food prices, and by sales for clothing and footwear.

Additional information:
Hanna Jürgenson
Eesti Pank
Communications Specialist
Tel: 5692 0930
Press enquiries: [email protected]