Ülo Kaasik, Head of Monetary Policy Department of Eesti Pank

According to Statistics Estonia, the consumer price index increased by 0.4% month-on-month and 3.5% year-on-year in June 2010. According to the first estimate, euro area inflation was 1.4%.

[The} Price increase of most of the manufactured goods and also services (excl. communications) has remained relatively subdued. As relative price level in Estonian economy continues to be higher than income level, the ongoing moderate price growth is necessary to support the economic recovery.

Price growth in June was driven by communication services - consumer prices increased by 0.4 percentage points due to the increase in communication services prices. In recent months, mobile communication services have caused considerable volatility in the consumer price index. In this case, the price index was influenced by April and May special offers of mobile communication services that came to and end, due to which prices increased by more than 15% as estimated by Statistics Estonia.

Most of the changes in prices were seasonal and similar to the developments seen in several earlier months. Looking at food items, in addition to price increase of milk, the hike in coffee prices in international markets spread to the local market in June and coffee price in Estonia increased by 7.6%. Motor fuel prices decreased by 1.6% partly on account of the fact that the weakening of euro halted.

In terms of domestic factors, electricity prices grew by 2.7% in June. The impact of sales tax established in Tallinn on price statistics was negligible. However, due to confusions surrounding the implementation of the new tax, some of the impact may appear in the coming months.

According to Eurostat, price level in Estonia is higher than that of income when compared to the European Union average. Statistical data refer to the harmonisation of price levels across the Member States in various categories. For example, in Estonia the fall in footwear price level from 115% to 107% in comparison with the average figure in the European Union could be considered as an important change. Clothing price level declined from 105% to 100% in 2009.

(EESTI PANK PRESS RELEASE 07/07/2010 )

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