Consumer prices held steady in October compared with September but rose 4.6 percent year-on-year, driven mainly by higher food prices, Statistics Estonia said.
Compared with October of last year, goods were 2 percent more expensive and services 8.3 percent more expensive.
Lauri Veski, head of consumer price statistics at Statistics Estonia, said the overall price increase on a monthly basis was mostly curbed by food products, which have now seen price declines for two consecutive months.
In October, food prices fell 1.2 percent compared with September. The main contributors to the drop were bread products, which fell 4.8 percent; cheese, down 3.6 percent; fruit, down 2.1 percent, and fish and seafood, down 2.4 percent. In contrast, the price of butter rose 7 percent and potatoes increased 4.2 percent.
“Compared with September, prices fell in nearly half of all product categories in October,” Veski explained.
Electricity prices fell 1.3 percent month over month. Gasoline was 0.5 percent cheaper in October, while diesel rose 0.9 percent. Clothing and footwear prices declined by 0.8 percent.
Housing costs increased by 2.5 percent, including a 1.8 percent rise in rental prices.
“Of the major product groups, only clothing and footwear saw price drops compared with October last year, down 6.9 percent, while food was 6.3 percent more expensive,” Veski said of the annual index change.
Among food products, the most significant year-on-year price increases were seen in meat and meat products, up 7.7 percent; milk, dairy products and eggs, up 9 percent; fruit, up 7.1 percent; and chocolate, which rose sharply by 34.3 percent. Meanwhile, vegetable prices declined 3.6 percent and sugar fell 13.2 percent over the year.
Analyst: The wages-prices spiral will persist into next year
“The main drivers of annual inflation have been the rise in healthcare service prices — up 10 percent — along with increased prices in transport services and food,” said Raul Eamets, chief economist at Bigbank. “What stands out is the difference in price changes between services and goods. While goods have increased by just 2 percent, service prices have risen by 8.3 percent.”
“The increase in service prices is largely due to wage growth, as labor costs play a bigger role in the service sector than in industry,” Eamets explained.
“Next year, wage growth will be led by the public sector. The state budget’s explanatory memorandum already points to a 7 percent rise in labor costs and if we add in wage increases for teachers and rescue workers, average wage growth in the public sector could reach 8 percent,” Eamets said.
“So, wage pressure will continue next year as well and part of that will inevitably translate into higher prices, driven by increased demand and rising labor costs,” he added.
Economist: Prices will continue to rise, just more slowly
“When accounting for seasonal fluctuations — since prices typically fall in October — there was actually a 0.3 percent increase in prices this October,” said Lenno Uusküla, chief economist at Luminor. “On an annual basis, goods and services were on average 4.6 percent more expensive, with goods up only 2 percent and services up 8.3 percent.”
Uusküla added that the slowdown in goods inflation is clearly linked to cheaper imports priced in U.S. dollars and a stronger euro, which makes dollar-denominated goods less expensive when converted into euros.
“The continued increase in goods prices, however, signals that the service component embedded in goods prices is rising and the VAT hike is also having a notable effect,” Uusküla said.
He also noted that service prices continue to rise at a rapid pace: “This is partly driven by wage growth, but the increase in service prices is significantly outpacing wage increases. Broadly speaking, this either reflects growing profits or inefficient operations.”
“Inflation in Estonia is continuing, but at a slower pace than before. On a month-to-month basis, goods prices may decline, but service prices are expected to keep rising somewhat,” Uusküla added.
The story was updated to add comments from economic experts.
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