Bank of Estonia: Overall price growth remained moderate

TALLINN - According to Sulev Pert, an economist at the Bank of Estonia, overall price growth in May remained moderate despite the increase in energy prices.

According to Statistics Estonia, consumer prices rose by 3.7 percent year-on-year in May. The inflation was primarily driven by the rising cost of motor fuels.

"Diesel fuel has seen a particularly rapid price increase, being 32 percent more expensive in May than a year earlier. Compared to gasoline, the European Union is more dependent on imports for diesel fuel, and supply difficulties have kept its refining margins at a high level. The market has been very sensitive to news from the Middle East, and there is great uncertainty about future developments. Consequently, the price of oil on the world market has fluctuated in a wide range in recent months, from $90 to $120 per barrel. In Estonia, the price increase has been somewhat curbed by a price war between gas station chains that began last autumn," Pert noted in a press release.

The price increase for food products was strong at the beginning of the year, reaching 6 percent, but it has slowed down rapidly in recent months, settling at 2 percent in May. "The fall in prices of food commodities on the world market has led to a decrease in both producer and import prices for food products. The prices of butter, dairy products, and grains have primarily decreased because the global grain harvest was very good last year. At the same time, the prices of oilseeds have started to rise, due to the more widespread use of biofuels because of high oil prices," the economist stated.

The prices of manufactured goods have not changed significantly over the year, increasing by 0.9 percent in May. "Clothing and footwear prices have continued to fall, but the impact of rising prices for electronic components is increasingly visible in the consumer basket. Memory storage devices have undergone one of the largest year-on-year price increases in the consumer basket, with prices rising by 37 percent. This is partly related to strong demand for chips from the artificial intelligence sector and limited production capacity. In the case of electronics and computer goods, technological development and the growing capability of devices have at the same time helped to offset some of the increase in input costs," Pert explained.

According to him, the change in prices in the coming months will largely depend on the prices of services, as the holiday season is beginning. "Last summer, the prices of leisure services in Estonia increased more rapidly than in other eurozone countries due to several major events. This year, the seasonal price increase is likely to be slower. A portion of the price increase, 1.5 percentage points, which is due to last July's VAT hike, will fall out of the inflation calculation," the economist added.