Inflation Clocked at High Level Again, Economists Say Relief Around Corner

Photo: Postimees/Scanpix
7/5/2013 1:28 PM
Category: Economy

Despite predictions that it will soon ease up, inflation is finding new ways of staying at Eurozone-leading levels.

Consumer prices grew 3.8 percent year-on-year in June, Statistics Estonia said today, with services up 6 percent and goods up 2.6 percent. Month-on-month growth was 0.5 percent.

The central bank's economic policy head, Rasmus Kattai, told uudised.err.ee that "inflation risks are growing," driven by commodities prices and workforce costs. The increased risks affect both imports and domestic prices.

"The drop in commodities prices has stalled in recent weeks, as the world's economic growth and demand outlooks are better," he said.

Kattai said it was possible imported commodities prices could start rising.

"The domestic inflation risk has risen in connection with the growth of the workforce unit expense growing faster in the first half of the year," he said.

So far, as shown by the June CPI, the services sector has been affected the most. It is less open to foreign competition than other sectors and workforce expenses are a more significant component.

Services prices also have farther to grow to catch up to the EU average.

According to a comparison released by Eurostat recently, services cost 62 percent of the EU average but goods are at 84 percent.

In June, electricity had the greatest effect on inflation, responsible for more than half of the increase - it cost 38 percent more than a year ago. As usual, food was also a culprit, accounting for around one-third of the inflation. Vegetables and meat in turn were the biggest "gainers," with potato prices in particular up 97 percent since June 2012.

Motor fuel, however, costs 2.5 percent less than it did a year ago.

The Finance Ministry's fiscal policy department analyst Kristjan Pungas said in commenting on the high inflation in June that a slowdown is expected.

He said the low point should come in the fall, when inflation could be under 3 percent year-on-year.

Besides the fact that prices were high in the comparison period, he said, "electricity should become cheaper, as signaled by lower exchange prices, and their stabilization in the first week of July around the annual average level."


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