The CPI inflation in September stood at 2.1% y/y, Statistics Estonia reported. The indicator moderated notably compared to 2.9% y/y and 3.4% y/y seen in August and July, respectively. In m/m terms, the change of the consumer price index was -0.3% in September.

To remind, average consumer price increase for 2012 overall stood at 3.9% y/y, while in 2011 average inflation was 5%, in 2010 average inflation was 3% vs. 0.1% deflation in 2009 and 10.4% inflation in 2008.

Consumer price inflation in September was as usual influenced the most by electricity and food, accounting for 60% and 30% of the overall y/y increase of the index. After deregulation of the electricity market as of January 2013 electricity prices have been constantly high (31.2% y/y in September). Goods became 1.4% y/y more expensive in September and services 3.2% y/y more expensive. Regulated prices of goods and services declined by 1% y/y and non-regulated went up by 3.1% y/y.

The Bank of Estonia commented that September marked the lowest y/y inflation rate in three years. Preliminary estimates show the same price dynamics in the Eurozone, largely due to a fall in the energy prices. At the same time the CB notes that higher price growth of services is a sign of rapid wage rise having inflationary pressure. However, the CB reiterated its 3% average HCPI forecast for 2013 (revised downwards in June from previous 3.6%).

Previously the CB was concerned that improved outlook on external growth in H2/13 might raise the prices of imported raw materials. Domestically higher labor costs in H1/13 could pressure prices upwards, especially through services. August’s and September’s data did not confirm these concerns strongly.