Domestic price rise slowing down

Martin Lindpere, Eesti Pank, economist

Consumer prices grew 0.7% in July. Nearly a half of the increase was made up by the alcohol excise duty, which was raised at the beginning of July.

Although the year-on-year price level is still 11.1% higher, the domestic inflation rate is following a steady downward trend owing to the general economic cooling. Wage growth has slowed, but taking into account the current economic situation, domestic pressures need to ease even more.

In July, the annual price growth of manufactured goods amounted to 2%. Like in most of the European countries, January and July have become the months of discounts in Estonia as well. Although durable goods were discounted more than last year, Estonia's average deduction rate still lags behind the EU average - the discount percentage is lower and applies to a smaller range of goods.

In the external environment, the July price hike was chiefly driven by oil. The euro area inflation continued to rise due to motor fuel and reached 4.1%. The price of crude oil has dropped noticeably over the past few weeks. Hopefully, this will cause the external environment inflation to decelerate.

Crude oil price has a direct impact on the price of the natural gas imported to Estonia and thus also on the price of thermal energy. Therefore, it is important to know whether the recent weeks' oil price fall is included in the autumn season contracts or not.

Month-on-month price growth will be one of the lowest of the past couple of years in August. This will be supported by the seasonal cheapening of food and the decreased motor fuel prices.