Data from the Bank of Estonia show that consumer prices in November were 3.7% higher than last year. Inflation over 2024 remained high for services at 7.4% and food products at 5.6%, but overall was held down by a fall of 4.7% in energy prices. The latter has fallen for motor fuels, which have come down 7%, while electricity prices have been 5% lower than a year earlier.

The rise in prices in recent months has been caused by higher prices for food commodities in global markets. Inflation for food is becoming more broadly based: coffee and juice have reacted particularly strongly, while dairy products may also be translated into notably higher prices in the European market. Inflation in export markets has benefited Estonian food producers, who have regained profitability from higher prices and increased sales volumes.

Markups in food retailing are relatively high, but profitability is low because costs, particularly wage costs, have risen faster this year than sales revenues. Wage pressures will be key for steering the future path of inflation. Wage rises have not been notably restrained by the recession dragging on for over two years, while unemployment has risen only mildly.

Moreover, the forthcoming tax rises may increase wage demands, which will subsequently slow the rate of fall in inflation.