Deflation continued in Estonia in July

In July, consumer prices decreased by 0.4%, year-on-year, and 0.2%, month-on-month. Regulated prices rose by 0.3%, non-regulated prices declined by 0.7%, yoy. Regulated prices were pushed up by increased prices of alcohol and tobacco after the excise tax hikes at the beginning of the year.

Food prices declined more than expected. Warm weather and lower prices of electricity network fees led to cheaper electricity and heating. The prices of transportation, mobile communication services, and higher education also declined. Motor fuel was a bit more expensive than in July last year despite cheaper euro and declined oil prices globally.

Inflation should accelerate in the second half of the year. We expect food prices to rise and euro to weaken. The impact of free higher education, implemented last autumn, will also disappear from September onwards.

Eurozone inflation decelerated to 0.4%, year-on-year, in July, the lowest level in 4 and a half years. Nevertheless, we expect the ECB to refrain from further monetary policy action at today’s meeting as the impact of their previous policy measures are still to unfold.

Source: Swedbank

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