Yearly inflation remained close to three per cent in April
Economist at Eesti Pank
- Rises in excise have made the inflation rate in Estonia one of the highest in the euro area
- The price of electricity has been very volatile and inflation in it slowed to 7% in April
- Inflation this year will be close to the 3% forecast by Eesti Pank in December
Inflation in Estonia is among the fastest in the euro area and yearly inflation was at 2.9% in April. Prices for food and energy were up by about the same amount in April as in March, rising 5%, but core inflation, which is the inflation rate without the volatile prices of goods like food, alcohol, tobacco and energy, rose to 0.8%. Inflation fell in the other two Baltic states to 2.1% and the average in the euro area in April was even lower at only 1.2%. Inflation has been held high in Estonia by the rise in excise at the start of the year that led alcohol and tobacco to contribute 0.8 percentage point to inflation in April.
Energy prices have been more volatile in Estonia in recent months than in Latvia and Lithuania, mainly because of electricity prices, but also because of prices for motor fuels. The price of electricity was 7% higher in Estonia in April than a year earlier, but the price level in neighbouring countries has changed little. This is probably because of the structure or length of the contracts of households, as the exchange price of electricity has been the same in all three Baltic states for the past year and a half.
Estonian consumers were spared a sharp rise in the price of heat in the last heating season, but the price of heat was already rising notably quickly in Latvia and Lithuania in the autumn. The rise in household expenses may yet accelerate this year as the rally in the oil price on world markets has not ended. The price of crude oil is 52% higher than a year ago, and the euro has started to depreciate. This is probably because the economic indicators in the US have been in line with market expectations, while economic activity in the euro area has been weaker than predicted.
There have also been differences in service price inflation in the Baltic states. Prices for services in Estonia have risen relatively slowly by only 1.8%, while service inflation has increased in Latvia and Lithuania to 4-5%. Service price inflation is being restrained in Estonia by a fall in communications prices and some regulated prices, and by cheaper holidays. Inflation for industrial goods has been slow in all the Baltic states meanwhile, and also in the euro area as a whole. This may be because the earlier appreciation of the euro meant that import prices for consumption goods fell. The consistent fall in the price of second-hand cars in Estonia is also of note.
The Eesti Pank December forecast expects consumer price inflation will rise to 3.2% this year.
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