Finance Ministry expects inflation to slow over next months

The protection money (Estonian: Katuseraha) component of the state budget has come in for some criticism, in particular from the Reform Party. Others say that it is simply the icing on the cake and not the main event (picture is illustrative). Source: (Marco Verch/Wikimedia Commons)

According to Kristjan Pungas, fiscal policy analyst at the Ministry of Finance, the ministry expects inflation to decelerate over the coming few months. The reasoning behind the forecast is that last year's excise hike is now noticeable in the reference base, and that a combination of different factors has seen energy prices rise beyond the expected levels.

"June's 4% inflation exceeds the Finance Ministry's spring forecast mostly due to the higher than expected prices of energy, or fuel and electricity. June's inflation will remain the year's highest, and inflation can be expected to decelerate over the next few months mainly because of a decrease in the contribution of tax measures, as the increase in the excise duty rate on low-alcohol beverages from a year ago will be reduced in July-August," Pungas said in a press release.

Due to higher energy prices, price growth in Estonia as well as in the euro area turned out to be the highest this year. "In addition to high oil prices, the growth in the price of energy was amplified here by a noticeable increase in the price of electricity. While the exchange price of electricity usually remains low in the spring and summer months for seasonal reasons, this year the warm and dry weather in the Nordic countries, an increase in the price of carbon dioxide quotas, and partly also the downtime for the maintenance of power plants have brought along a higher exchange price," Pungas said.

"Oil prices in June were nearly 60% higher than a year before, which is why the price growth of motor fuel accelerated to 17%. Even though oil prices have shown an upward trend since summer of last year, this has not brought along an increase in the price of district heating. A part of their own here is played by the increased use of more favorable heating sources like wood fuel and waste instead of gas in producing heat," the analyst said.

"The price growth of services accelerated to 3%, which unlike previous months is better in coordination with wage developments. The price increase of services is decelerated by the decrease in the price of transport services, which against the background of increasing fuel prices is rather temporary and an administrative measure in the form of a free kindergarten meal. From July, transport services will be affected by the launch of free buss connections on some county lines," Pungas said.

The Estonian consumer price index rose by 4% on year in June 2018 and 0.9% compared to May. The last time that the change of the consumer price index compared to the same month of the previous year was over 4% was in November 2017, when the change was 4.2%, Statistics Estonia said.

Compared to June 2017, goods were 4.1% and services 3.9% more expensive. Regulated prices of goods and services have risen by 11.2% and non-regulated prices by 2.1% compared to June of the previous year.

Editor: Dario Cavegn

Source: BNS

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