Analytics, Economics, Estonia, Inflation

The central bank commented on the consumer price index statistics published on Tuesday, noting that companies’ sales options for foreign markets are still small and the decline in the income of households is also keeping sales down on the domestic market. Therefore the prices of several goods continued falling. The seasonal decline in prices of foodstuffs and clothing could also be noted.

The increasing prices of motor fuels was also felt, increasing the price level by nearly 0.4%.

The prices of several services increased in June, partly due to the abrupt surge in the notary fees. Compensating for the fall in incomes due to the low point on the market with increasing prices is unusual, and it is only possible in the part of economy where market forces are weak. This includes a significant part of communal services, public transport and energy market where prices have thus far not started falling from their peak levels.

According to the central bank, the administratively regulated prices, i.e. those controlled by Government authorities and local governments, need to be flexible, following the overall state of the economy, the cost dynamics and the principle of efficiency. Hence, not all of the increase in the value added tax needs to be transferred to end consumers.

The Bank of Estonia noted that in the past three months, the prices of banking services have grown by nearly ten% and while it will not contribute much to the overall increase in price levels, it indicates that banks are compensating for the decline in revenue from other sources.

In June, the Government decided to make a number of changes in taxes in order to improve the budgetary situation, affecting the inflation rate this year and next year. These changes will not, however, endanger the period of low price pressure facing the Estonian economy.

According to approximate estimations, the average inflation rate this year might reach 0.5%, which is by a percentage point higher than predicted in spring due to the planned tax changes. The Bank of Estonia will disclose its new outlook on the inflation rate in October.