OREANDA-NEWS. August 07, 2009. According to Statistics Estonia, in July, consumer prices increased in Estonia by 0.9% compared to the previous month. Nevertheless, the downward trend in price level year-on-year still continues, with 0.7% decrease in July. According to preliminary estimates, the euro area price level in July was 0.6% lower than a year ago, reported the press-centre of Eesti Pank.

The VAT increase in July has to a great extent passed on to goods prices; however, it is likely that the tax increase has not yet passed on in full to the prices of services. Food prices increased by 1.3% in July. However, compared to the period a year ago, food prices are 4.9% lower.

The rise in energy prices exceeded that of the VAT, the factors being both the tax rate change but also developments in commodity markets.

Price increases were also strong in branches with less competition, such as energy and various utilities. Decreasing price rigidness is important to maintain economy's competitiveness.

The data for July confirm that the increase in VAT rate has not broken the year-on-year inflation pattern. Eesti Pank will publish a new inflation forecast in October.