- External environment price pressures remain weak, although some commodities have become more expensive
- Oil price, which has a major impact on the cost of the consumer basket, went down again in July
- Domestic price growth in Estonia has slowed despite the fact that retail and wages have grown relatively fast
Data from Statistics Estonia show that the consumer price index did not change in July. Compared to July 2015, the price level dropped 0.1%. Growth in the harmonised consumer price index of the euro area accelerated in July from 0.1% to 0.2%. The price pressures in the external environment are still weak, although the global prices of some commodities have turned upwards. Over the past few months, food prices have gone up primarily for sugar. The market outlook for this year’s harvest has been positive and this is expected to rein in food price inflation. However, the price of crude oil fell again in July after six months of positive growth. The oil price significantly affects the cost of the consumer basket, as it has an impact on other energy sources, such as heat, as well as many services.
Core inflation (i.e. manufactured goods and services), which is mainly dependent on domestic factors, has slowed down to 0.4%, even though retail sales volumes and wages have continued to grow relatively quickly. Year-on-year, the prices of manufactured goods grew in July on account of clothing and footwear, as seasonal discounts were smaller this year than the year before. The growth in service prices, which was previously supported by rising rent prices, has dwindled in the past months. The consumers’ inflation expectations and sentiment indicators are low, which makes it harder for companies to raise their prices. This puts a damper on the growth of consumer prices.
Eesti Pank forecasts moderate inflation for the second half of the year. As past months have seen falling prices, it may be assumed that the average annual price level will not change compared to last year.
Source: Bank of Estonia
Author: Rasmus Kattai, Economist at Eesti Pank
See graphs here