The price hike of motor fuel continued in May

Martin Lindpere, Eesti Pank, economist

In May, the CPI basket became 0.6% more expensive and the year-on-year price growth was 11.3%. Domestic inflation growth is slowing as expected, but prices continue to rise due to external factors.

The main reason behind inflation was once again the growing price of oil and the resulting price surge of motor fuel. This CPI component became approximately 4 pp more expensive for the Estonian consumer in May, accounting for over a third of the monthly inflation. The depreciation of the dollar, which has so far been somewhat balancing the price hike, has stopped. Looking at the oil price developments it can be assumed that the price of motor fuel will continue to grow and thus also increase the price of other CPI components.

Motor fuel and food are the main reason why the euro-area inflation rate has reached a record of 3.6%. However, inflation is expected to slow considerably next year.

The price of food rose 0.9% in May, which means eating out became also more expensive. In both Estonia and the euro area, all the price pressures resulting from the price growth of commodity food have not yet passed through to consumer prices. This applies primarily to cereal products and meat. Dairy products are an exception, since after the price surge at the end of last year, there is now some room for a drop in their prices.

Domestic inflation continued to decelerate owing to the slowdown in the rise of service prices. Declining private sector wage growth and decreasing household consumption expenditure, which is due to precautionary motives, have contributed to this. However, threats have not yet withdrawn, since the wage growth of the public sector picked up speed at the start of this year.

Eesti Pank expects 9.8% inflation this year, provided that external inflationary pressures subside.