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Bank of Estonia: July alcohol excise duty cut slowed inflation

The reduced alcohol excise duty rate entered into effect on July 1.
The reduced alcohol excise duty rate entered into effect on July 1. Source: Priit Luts/ERR

The consumer price index (CPI) in July fell 0.1 percent compared to June but increased 2.1 percent on year. According to the Bank of Estonia, the cut in the excise duty rate on alcohol which entered into effect on July 1 had a substantial impact on this.

Lower excise rates on alcohol were introduced on July 1, but based on data from Statistics Estonia, the pass-through to retail prices for alcohol was relatively small, Bank of Estonia economist Sulev Pert said in a press release on Wednesday.

Strong liquor prices fell by 6.7 percent, but beer prices by just 2.5 percent. As unemployment is low and wages are rising fast, companies can keep their price margins high.

According to Pert, the excise cut should reduce the inflation rate by 0.2 percentage points this year.

Inflation in the euro area, meanwhile, slowed to 1.1 percent in July, a rate last seen at the beginning of last year. Inflation fell in foreign markets partly due to the fact that international trade barriers have reduced demand for goods and commodities.

The dollar price of crude oil was 14 percent lower on year, as did energy prices and the prices of imported clothes and home electronics.

According to the forecast published by the central bank in June, Estonia can expect to see inflation increase by 2.5 percent this year.


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Editor: Aili Vahtla

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