By Lauri Matsulevitš, Economist at Eesti Pank.
Data from Statistics Estonia show that consumer prices were up 2.3% over the year in June. The main driver of inflation was energy and fuels, as the heavily weather-dependent price of electricity was higher than a year previously for example. Motor fuels and gas were also a little more expensive than they were last June, though fuels, especially diesel, were cheaper than they were in the spring.
Prices for food, the largest part of the consumer basket, were down by more than 1.5% and the fall was quite broadly based. Prices fell for pork, fruit and vegetables, and the price of butter fell further having spiked sharply last year.
One reason that inflation fell was the high reference base from last year, as there were very wide fluctuations at that time in the prices of individual services. Consumer prices were pushed up last June by a very large rise in prices for package holidays and accommodation services, but this year holidays are 9% cheaper than last year and accommodation is 20% cheaper. It is also probable that merchants and service providers started to raise their prices before July last year in anticipation of the rise in VAT last July, as it is notable that monthly inflation had already picked up in June last year. The rise in VAT passed through into prices over several months, and so yearly inflation rates in the coming months will be similar to or below that for June.
Prices were 0.5% lower than in the preceding months, which in historical terms is a large fall for the month of June. The fall came from motor fuels as well as from food. Exports of oil products from the Middle East that were halted by the war in Iran in the spring started to flow again from the middle of June, and the price of oil then dropped sharply. This was reflected in the forecourt prices of filling stations, where petrol was 5.5% cheaper than in May and diesel was 9% cheaper, and prices of motor fuels will probably continue to fall in July.
Inflation in Estonia without the impact of tax changes has been around the average in Europe since the end of last year, or even below it. Actual inflation in June was now also below the euro area average as the harmonised index of consumer prices that gives comparison across the euro area was up by 2.8% over the year in June. Inflation in Latvia at the same time was 3.3%, while in Lithuania it rose to 5.5%. Eesti Pank expects inflation for the whole year will be 3.4%.
Source: eestipank.ee
