VAT and other tax hikes, a rise in electricity prices and price rises for specific food types are all behind the continued high inflation in Estonia, experts say.
While inflation may go down in the months to come, it is not likely to fall as low as 2 percent, “Aktuaalne kaamera” reported.
Fresh Eurostat data reveals Estonia’s on-year rate of inflation to August, at 6.2 percent, was the highest across the euro area, for the 12th consecutive month.
Swedbank senior economist Liis Elmik said food prices were the prime factor behind overall inflation in Estonia, while tax hikes such as the VAT increase of 2 percentage points which came into effect at the start of July have contributed to the rise in the rate of inflation itself.
Behind that lies the seeds of a slowdown in inflation later in the year.
“The price rise corresponded to our expectations, that we expect a 5.5 percent price increase for this year. The price rise accelerated somewhat; behind that were the tax increases. Not all businesspeople changed their price labels immediately, and it took time. For this reason we saw a faster rise in prices in August. In the coming months, the price increase will continue, but at a slower pace, as the greater part of the impact of taxes should then be seen in final prices,” Elmik said.
Overall the purchasing power of the average wage earner will fall by about 3 percent this year, Elmik went on.
Bank of Estonia (Eesti Pank) economist Kaspar Oja said costlier electricity was also behind inflation to August, noting the on-year figure matches the central bank’s forecast.
Kaspar Oja Source: ERR
As for the future, inflation will slow down though is not likely to reach the 2 percent-mark, he went on.
“Forecasts expect that inflation could begin to slow down in the coming years. It probably will not reach quite down to around two percent, because there are also various administrative factors already known. For example, in a few years the second component of the carbon unit trading system could be applied, which should also begin to affect some components of consumer prices,” Oja said.
The new emissions trading system applying to transport and housing is likely to hike the price of motor fuel and heating.
As for food prices, supermarket Selver said beef, coffee and chocolate price rises have contributed as much as 25 percent of overall inflation here over this year. Food price inflation was over 9 percent on year to July, the supermarket said.
Selver’s business accounting manager Kristjan Anderson told “Aktuaalne kaamera”: “In the case of foodstuffs, unfortunately it must be said that in July it grew by 9.1 percent. Here, price growth has already caught up with wage growth. There are no exact August data yet. Whereas in July, with the VAT increase, food inflation accelerated by about 0.7 percent, meaning that the whole change did not reach final prices, then probably in August about the same sum will be added on. So most likely the price growth of foodstuffs in August promises to end up near 10 percent. This is already quite difficult for the consumer to bear.”
This has already had an effect on sales: In July, food sales at Selver were down 4.6 percent, Anderson added, and the figure for August is likely to be around the same.
The euro area average rate of inflation for August was 2.1 percent, a rise of 0.1 percentage points on the previous month.
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Source:
‘Aktuaalne kaamera,’ reporter Toomas Pott.