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Inflation in October was driven by higher prices for air tickets

Data from Statistics Estonia show that the cost of the consumer basket rose by 0.6% in October to be 4.1% higher than it was a year earlier. Food prices were 6% higher in October than a year earlier, and prices for manufactured goods were 3% higher. Inflation for services accelerated to 9% in October, but overall inflation was pulled down by falling energy prices, which were 6% lower than a year before.

Consumer prices were mainly higher in Estonia in October than they were in September because air tickets were more expensive. Air tickets were 23% cheaper in September than in the previous month, but they were 65% more expensive in October and provided two thirds of the monthly figure for inflation. The volatility in the prices of air tickets was caused by school holidays, but prices have risen a long way for holidays because demand has been strong. Travel has been encouraged by inflation being lower in most countries in Europe than in Estonia, meaning that the purchasing power of Estonians abroad has been relatively better.

The prices of some individual food products have risen fast in Estonia in recent months, with higher prices for coffee and juice on the global market for example being transferred quickly into Estonian consumer prices. The rate of inflation for non-alcoholic beverages in Estonia has been one of the highest in Europe at 20% over the year. Prices for drinks in other euro area countries have on average risen by only 4%. Prices for food commodities on the global market have not yet stopped rising, and inflation for them may be expected to slow only next year.

Eesti Pank’s most recent forecast expects that consumer prices will rise by 3.5% this year, and inflation next year will be around 4%. Inflation will be kept up by several tax rises, with the rise in VAT and the introduction of the motor-vehicle tax having the biggest impact. Sales of cars have been noticeably higher in anticipation of the vehicle tax, but prices of cars have not particularly reacted to it yet.

Source: eestipank.ee

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