Inflation in Estonia this year is due to energy prices and rises in excise

  • Inflation passed 3% in April
  • Prices for commodities have shown signs of rising more slowly on world markets in recent months

Consumer price growth accelerated to 3.2% in April in the data from Statistics Estonia. Energy prices rose 6.8% over the year, food products including alcohol and tobacco were up 4.8%, and core inflation1 reached 1.4%.

Prices for commodities have shown some signs of rising more slowly on world markets in recent months. The price of a barrel of crude oil remained close to 53 dollars in March and April, but it started to fall at the end of April. This was because of increased oil production in the USA and weak demand in Asian countries. The oil producing countries of OPEC are considering a cut in their output of oil, and will probably not let prices fall very low. Data from the Food and Agriculture Organization (FAO) of the United Nations showed lower prices for food commodities on world markets for the second month in a row. Prices fell by quite a long way in March and April, down 4.3% in total. Current food prices will have a notable effect on inflation numbers next year, as consumer prices reflect changes with a time lag.

Inflation in Estonia this year is mainly being affected by energy prices and rises in excise. In July, alcohol excise will rise again, with excise on beer rising by 70%. Rises in excise will add around 0.2-0.3 percentage point to inflation. Core inflation, which is the rise in prices of services and manufactured goods, will continue to rise gradually in the second half of the year. Core inflation is affected by both import prices and faster economic growth.

The December economic forecast last year expected inflation to rise to close to 3% in 2017, and so far it has been in line with that forecast. Eesti Pank will publish a new inflation forecast in June.

1 Core inflation covers manufactured goods and services and excludes the volatile prices of energy and food, and it covers 57% of the consumer basket.

Source: Bank of Estonia

Author: Sulev Pert, Economist at Eesti Pank

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