Swedbank: Acceleration in inflation was expected

TALLINN - The prices of goods and services rose by 0.9 percent in September compared to August, and the consumer basket became 3.5 percent more expensive year-on-year. According to Swedbank, this acceleration in price growth was expected and primarily driven by rising energy costs.

"The price increase seen in Estonia in September was one of the lowest in the eurozone, which gives some breathing room to companies that must compete with businesses from other countries where inflation has not been as rapid in recent years, despite their own rapidly growing costs," said Liis Elmik, a senior economist at Swedbank.

According to Eurostat's preliminary comparable figure, the Harmonised Index of Consumer Prices (HICP), inflation in Estonia was 3 percent in September, while the average increase for goods and services in the eurozone was 3.8 percent. Latvia experienced a similar price hike to Estonia, but Lithuania's was significantly faster at 6.1 percent, primarily due to pension reforms and tax increases.

"Nearly half of the monthly price increase was due to the rising cost of motor fuels, which have gone up by about 40 percent over the year. Interestingly, public transport prices have remained unchanged during the same period. While train and bus tickets have become more expensive, airline tickets have actually become cheaper, according to calculations by Statistics Estonia," Elmik said.

In addition to diesel and gasoline, prices for other fuels also increased in September. Gas saw the largest monthly price hike. Elmik forecasts that the price of gas in flexible-rate plans will rise even further in October.

Although the conflict between the US and Iran continues, oil exports from the Persian Gulf have begun to recover. In September, the export volume of oil and petroleum products reached over 80 percent of its pre-war level. However, transit through the Strait of Hormuz remains unsafe, with new attacks on tankers being reported.

"As a result, market participants are quite pessimistic and expect oil prices to remain around 100 dollars per barrel in the coming months. A drop in gas prices is anticipated in Europe next spring, after the heating season ends. By the end of 2027, current forecasts suggest that European gas prices will still be nearly twice as high as they were before the war in the Middle East," Elmik stated.

In September, the prices of clothing and footwear also rose, in addition to energy costs. Over the year, however, apparel has become somewhat cheaper. Cross-border shopping increases competition and helps to lower prices.

"Parents were pleased by the elimination of kindergarten co-payments in Tallinn. However, since the cost of kindergarten constitutes a small share of the consumer price index, the impact of this decision on the overall index was modest," Elmik noted.

Swedbank forecasts a three-percent inflation rate for this year. Next year's price increase is expected to remain below three percent. The largest contributors to this year's inflation are rising energy and transportation costs.