Bank of Estonia: Rising fuel prices account for half of annual inflation

TALLINN - According to data from Statistics Estonia, consumer prices rose by 3.5 percent year-on-year in September and by 0.9 percent compared to August. The acceleration in inflation was driven by rising energy prices, said Bank of Estonia economist Sulev Pert, adding that excluding energy, price growth remained moderate and does not indicate a widespread strengthening of price pressures.

"Motor fuels alone accounted for almost half of the annual price increase in September. In addition to crude oil being approximately 70 percent more expensive in euro terms than a year earlier, fuel refining margins, which now account for about one-fifth of the fuel price, have also risen this year. Motor fuel prices also rose sharply in neighboring countries in September. In October, Latvia temporarily lowered its fuel excise duty until the end of the year, after which fuel prices dropped to Estonian levels. Among the Baltic states, motor fuels remained the most expensive in Lithuania," Pert noted in a press release.

The economist pointed out that among housing-related energy costs, natural gas saw the steepest annual price increase, rising by 38 percent. The price increase for heat energy remained at previous levels. During the heating season, more expensive gas could raise district heating prices, but the impact depends on the region, as many district heating networks predominantly use biomass or waste heat. In September, the average stock exchange price of electricity remained lower than last year, supported by favorable weather conditions. For consumers, however, electricity was more expensive, as the final price is also affected by the balancing capacity and security of supply fees added this year, as well as changes in monthly fees.

"Food prices continued to curb overall inflation, being lower in September than a year earlier. However, the rise in producer prices for foodstuffs suggests that the recent price decline may not continue. Dairy products, oils and fats, and fruits were still cheaper than a year ago, while vegetables, in contrast, were more expensive. Varying price changes for foodstuffs are influenced by both seasonality and special offers on individual products. An increase in production costs may reach consumer prices with a delay, and its extent also depends on competition in the retail sector," Pert explained.

Excluding energy prices, price growth remained slow in September, he said. "The annual price increase for services has slowed down significantly compared to last year, from 10 percent to 2.3 percent. Persistently high energy prices would increase companies' production and transport costs and gradually raise the prices of other goods and services as well," the central bank economist added.