Bank of Estonia: Inflation likely to hover around 4-5 percent to year-end

Bank of Estonia building in Tallinn.
Bank of Estonia building in Tallinn. Source: Siim Lõvi /ERR

The rate of inflation in Estonia as expressed by the Consumer Price Index (CPI) is unlikely to see any significant changes between the present and the end of 2023, even as inflation has seen a trend towards a fall since the start of the year, the Bank of Estonia (Eesti Pank) says.

The CPI had been falling steadily throughout this year and to the end of summer, the Bank of Estonia notes. Whereas at the start of the year, it was still near the 20-percent mark, by August the figure stood at 4.6 percent.

Consumer surveys for August report that no increases in purchases of durable goods are planned, the Bank of Estonia goes on.

Lower prices for inputs and an appreciation of the euro have helped bring inflation down on the production side, and, as a result, domestic electronics goods have also become cheaper.

Overall, the central bank says inflation will probably remain at around the 4-5-percent-mark until the end of the year. Oil prices have started to rise on global markets, and the reference base from a year ago will start to cool inflation from September. Eesti Pank forecasts that inflation will average close to 9 percent in 2023.

The bank says movements in prices varied across sectors in the month of August, however.

Energy prices were 14 percent lower than they had been a year earlier, but food prices were 12 percent higher.

Services and manufactured goods prices were also up on year, by 7 percent.

Thus in summary, price pressures have eased but have not disappeared.

Inflation was 4.7 percent in the first eight months of this year, one third of which came in April alone, when support measures on energy ended – with the end of the heating season.

Sources of new price pressures mainly arise from services prices creeping up, in a wage-price inflation spiral, the central bank goes on.

Tourism is one sector where this has happened, also driven on by the exit from the pandemic.

Inflation has however slowed for durable goods, from the manufactured goods sector.

Demand-side factors including an expectation of future price growth, utilization of savings, and activity on the real estate market had earlier led to rising prices for durables, but this has as of the present dissipated, and consumer confidence is low, the Bank of Estonia says.


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Editor: Andrew Whyte

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