Experts: High inflation likely to last to spring

Fuel prices are among those areas which have seen high levels of inflation, close to 50 percent on year in the case of diesel.
Fuel prices are among those areas which have seen high levels of inflation, close to 50 percent on year in the case of diesel. Source: Ken Mürk/ERR

Estonia's continued high inflation, driven by high energy prices arising from the Ukraine conflict and the highest rate in the European Union, will continue through to spring, experts say.

The rate of inflation has remained above 20 percent since May, while, Liis Elmik, senior economist at Swedbank, said: "If we look at the most recent figure, the rate of inflation has been 25 percent over the course of the year, while a third of that total derives from electricity prices.

"The price of both electricity and gas has risen three-fold over the year," Elmik added.

This has had a knock-on effect on most other areas of essentials and has made life in Estonia twice as costly as before, ERR reports.

Rasmus Kattai, head of economic forecasting at the Bank of Estonia (Eesti Pank) said: "If we take people's expenses on heating, vehicle fuels and electricity together, at the end of the summer which just passed, we had to spend twice as much on these areas as a year ago.

Price levels in overall, absolute terms have reached EU averages, in the meantime, Lenno Uusküla, chief economist at Luminor bank, told ERR.

Uusküla said: "If you look at the price level from last year, still below the EU average, then factor in this year's inflation rate and compare the EU average with the Estonian price levels today, we have now reached 100 percent [of the EU average] as of August," adding that in the meantime, wage levels certainly have not reached that average.

"We are the most expensive Central and an Eastern European country; we are even more expensive than Italy and Spain," Uusküla went on.

This is likely to remain the case to next spring, by which time natural gas and electricity prices should have moved down below their current, record levels, Uusküla added.

Month-on-month, inflation will only start to fall once energy support prices come into effect, from October, Liis Elmik at Swedbank added, though inflation will still be around the 20-percent mark at year end.

Wages in the meantime will only have risen by 8 percent during that time.

Rasmus Kattai at the central bank said however that natural gas and electricity prices are so volatile, it is hard to forecast with a great degree of accuracy what will happen there.

The consumer price index (CPI) was 24.8 percent higher in August than in the same month in 2021, while natural gas was 244.2 percent more expensive, electricity reaching households almost 206 percent costlier, heating over 60 percent more expensive and solid fuels around 100 percent dearer.

Over the same period, diesel has risen by 47 percent, almost, in price, while gasoline is 30.5 percent more expensive.

The longer trend has been for inflationary growth since the negative rate experienced in 2020, from 0.2 percent in January 2021, to 12.2 percent at the end of that year, a slight fall to 11.3 percent in January 2022, and an accelerating rise to the near-25 percent experienced in August.


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Editor: Andrew Whyte

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