Ministry of Finance: Inflation to remain low during summer months

TALLINN - Estonia's inflation rate in July, similar to June, remained one of the lowest in the eurozone, supported by falling food prices and a modest increase in the price of services.

According to data from Statistics Estonia, prices rose by 0.5 percent in July compared to the previous month, and annual inflation slowed from 2.3 percent in June to 2.2 percent in July. Since the start of the conflict in the Middle East, price growth in the eurozone has remained around 3 percent.

"Events in the Middle East have caused significant fluctuations in oil and gas prices in recent months, which can also be seen in the rapidly changing prices at petrol stations. The price of oil has fallen by nearly 30 percent from its spring peak, while gas prices in Europe remain high due to the slow filling of storage facilities," Kristjan Pungas, an analyst at the Ministry of Finance's fiscal policy department, stated in a press release.

While hot and dry weather has driven up electricity prices in Central Europe, in Estonia, the exchange price for electricity was kept low by affordable power from Nordic countries, according to Pungas. Overall, due to these factors, energy prices in Estonia have risen to a similar extent as in the eurozone, reaching nearly 10 percent.

"Compared to the eurozone, Estonia stands out for its falling food prices and slower growth in service prices. Our food prices in July were 1.6 percent lower than a year ago. This is mainly due to cheaper fresh produce and dairy products, but the price increase for grain and meat products has also halted. Looking ahead, however, we must consider that the prices of some food commodities on foreign markets have begun to rise, and this could, with some delay, also be reflected in domestic food prices," the analyst noted.

"The price increase for services has slowed to an unusually low level of around 2 percent, while in the eurozone it stands at 3.3 percent. Major events last year, strong demand for travel services, and a partial increase in the VAT rate pushed the price growth for services into double digits," Pungas added.

According to him, price developments in the coming months will largely depend on how events in the Middle East unfold. "If the crisis continues for a longer period, it is likely that higher energy prices will also be passed on to other goods and services. A gradual acceleration of inflation can be expected in the autumn months," the analyst forecast.