Bank of Estonia: Import prices curbing inflation this year

TALLINN - While statistics published on Monday showed continued strong year-on-year consumer price growth, import prices are curbing inflation this year, according to Bank of Estonia economist Sulev Pert.

According to Statistics Estonia, the annual growth of the consumer price index reached 3.7 percent in January. The price increase was mainly driven by the rising cost of electricity. Excluding the electricity price hike, the rest of the consumer basket saw a year-on-year price increase of 2.9 percent.

Cold weather in January pushed the exchange price of electricity to a level approximately twice as high as in the previous month. While December was significantly warmer than usual, January turned out to be one of the coldest starts to a year in recent times. "Considering that electricity accounts for nearly five percent of the consumer basket, such large fluctuations also have a noticeable impact on the headline inflation rate. The effect of the rise in electricity prices on consumer prices reached one percentage point in January. As February is also forecast to be colder than usual, the prices of gas and wood chips are expected to rise as well, increasing heating bills in the coming months," Pert noted.

The price growth for food products remained rapid in January, reaching six percent year-on-year. Due to seasonal factors, fresh vegetables and fish products became more expensive. The prices of alcoholic beverages rose by five percent following the end of December's promotional campaigns, and the price increase was also fueled by hikes in excise duties.

"At the same time, lower prices for food commodities are holding back the overall price growth of food this year. In the European Union market, the price of butter has fallen by 43 percent over the year, a trend that usually carries over to other dairy products. On the world market, sugar and cocoa prices decreased last year, but the price trend for coffee remains uncertain," Pert continued.

According to him, the temporary volatility of electricity prices does not alter the overall trend of slowing inflation. "Import prices are holding back price growth this year, and domestic cost pressure is also balanced by productivity growth. The impact of tax hikes is also smaller this year than last year, contributing about one percentage point to inflation. According to the Bank of Estonia's forecast, the average annual price growth will be close to three percent," Pert added.