According to the
data of the Statistics Estonia, the cost of the Estonian CPI basket
increased by 0.6% in June 2008, keeping the year-on-year price growth
still above the 11% level.Like in previous months, the growing cost of motor fuel dominated in
June as well. The price increase of domestic factors continued at a
slowing pace. For example, the price growth of services decelerated for
the fifth month in a row. The recent months' main message is
that the inflation outlook of the global economy is deteriorating - a
trend which continued also in June, despite slowing global growth.
Preliminary estimates indicate that the euro-area inflation accelerated
to 4% in June. The price hike of fuel and food contributed most to this
development. Owing to domestic factors, the Estonian
inflation is on a downward trend and this tendency is set to continue
in the second half of this year and reach the next year as well. The
more flexible is the reaction of wages and prices to the changing
economic environment, the smaller are the losses incurred during the
shift from one economic growth cycle to another. Estonia's
current inflation rate and growth outlook have undermined consumer
confidence and resulted in greater caution as regards spending. In
order to re-attract customers to their stores, traders should drop
prices more extensively. The price mark-ups added in the retail trade
have been growing rapidly in recent years, thus providing a basis for
lowering inflation. The next months' inflation will be
primarily affected by increasing excise duties and the price of thermal
energy, but as the domestic price pressures subside, inflation should
start to slow in the second half of the year.