Analytics, Direct Speech, Economics, Estonia, Inflation

The Estonian consumer price index was 0.6% higher in October than a year before, though the price level was down 0.3% on September. The harmonised index of consumer prices, which allows prices to be compared with those in other euro area countries, was up 1.7% in September. Average inflation in the euro area rose to 0.5% in October, which is still below the European Central Bank’s target of close to 2%.

Higher excise rates on motor fuels, alcoholic drinks and tobacco products led the rise in prices in Estonia in October. The average price of the rest of the consumer basket has changed very little though. Core inflation, especially prices for services, has been very volatile in recent months because of individual factors. The price of aeroplane tickets has fluctuated a lot for example, as elsewhere in Europe, and that has been reflected in the inflation figures. Service price inflation should increase further in future, partly because the effect of free services has ended. In the past three years, free higher education has reduced inflation by 0.3 percentage point, for example.

The most recent low in the price of oil was reached in January at 30 US dollars a barrel, and the oil price has since risen 56% to stand at 47 dollars a barrel by now. Although that looks like a large rise when expressed as a percentage, the price of oil is still relatively low in euros. Motor fuels were 7% more expensive than a year earlier in Estonia in October, mainly because of the rise in excise. District heating was 6% cheaper than a year before though, and the price of it is unlikely to rise much before the end of the heating period, as the price of gas depends on the oil price with a long lag. Increased seasonal demand means that the price of electricity started to rise on the Nordic exchange and futures transactions indicate it will remain high until the second quarter of next year.

Average inflation this year will remain close to 0%, as expected. Further developments in prices will depend largely on what happens to the oil price in global markets.