Estonian central bank Eesti Pank said in comments to the March inflation data that labour-intensive services can be expected to become more expensive along with growing wage costs in the second half of the year.
Data from Statistics Estonia show that inflation in Estonia slowed somewhat in March, from 3.7% to 3.5%. Leaving aside the price growth of electricity, the 2.3% increase in the price of other goods and services was relatively modest. One reason behind the slowdown in inflation was the last year’s high reference base for oil prices. As a result, the cost of fuels cheapened by 3.6%. The same factor affected inflation in other euro area countries as well, so Eurostat’s preliminary estimate is that inflation in the euro area slowed to 1.7% in March.
The Estonian CPI rose 0.7% in March compared to February. The price growth of food made up nearly half of the month’s inflation. Seasonal factors caused the price of vegetables and fruit to go up by 9% and alcoholic beverages became 2.3% more expensive. Unprocessed food has been the primary source of price growth in recent months, whereas the cost of processed food even cheapened in March, by 0.7%.
The impact of domestic factors on inflation is likely to increase in the second half of the year. Above of all, labour-intensive services can be expected to become more expensive along with growing wage costs. Eesti Pank forecasts this year’s average HICP growth to be 3.6%.