Consumer price index, 15 July 2001

The Consumer Price Index (CPI) fell by 1.4 per cent from June to July 2001. In July 2001 the CPI stood at 108.2 (1998=100), while in July 2000 it was 105.4.

Price change from June to July 2001: Sharp decline in food prices

The prices of food fell by 9.1 per cent in July due to the VAT reduction on food and non-alcoholic beverages. Meat prices decreased on average by 8.6 per cent while prices of dairy products like milk, cheese and eggs fell by 9.7 per cent. Vegetable prices had a major fall of 14.3 per cent, and the prices of bread and cereals were 9.5 per cent lower in July than in June. The prices of fruit, however, fell by 3.7 per cent in July.

The decline in the prices of non-alcoholic beverages was 8.4 per cent. The prices of coffee, tea and cocoa fell all together by 9.5 per cent, while a smaller decline was recorded in the prices of mineral waters, soft drinks and juices.

Petrol prices fell by 8.0 per cent in July due to lower taxes and lower oil prices. During the last two months petrol prices have fallen by 11.7 per cent. Sales activity caused the prices of clothing and footwear to decrease by 3.3 per cent.

The tariffs on electricity increased by 0.9 per cent while the rentals for housing increased by 0.2 per cent last month.

The cost of postal services, parking meter and driving schools had a sharp increase last month due to the VAT reform.

Year-to-year change: 2.7 per cent rise

From July 2000 to July 2001, the CPI rose by 2.7 per cent. The increased tariffs on electricity are the major contributor to the price growth. The electricity tariffs have increased by 41.3 per cent during the last 12 months. Rentals for housing and costs for owner-occupied housing went up 3.7 and 4.4 per cent respectively.

Another contributor to the price growth is the transport sector. There has been a strong increase in the prices of passenger transport by road and air during the last 12 months. The passenger transport by air has increased the most by 18.9 per cent. The prices of maintenance of vehicles have also influenced the year-to-year change.

Higher prices of hairdressing and some appliances for personal care and higher prices of different services for social protection also contributed to the year-to-year change in July.

The prices of food and beverages reduced the price growth in July due to the VAT reform. The prices were 6.1 per cent lower in July this year compared to July last year. The prices of dairy products have decreased the most, by 9.3 per cent. The prices of bread and cereals have dropped by 9.0 per cent, while the meat prices have fallen by 6.4 per cent.

In addition to lower food and beverage prices, lower prices of petrol, audio-visual equipment and telephone products have reduced the price increase the most in July.

The year-to-year growth declined from 3.8 per cent in June to 2.7 per cent in July. This fall was mainly due to the development of the food and the non-alcoholic beverage prices. The prices fell by 8.9 per cent last month while the prices were practically unchanged in July last year. Decline in the petrol prices has also slowed down the price growth in July. The prices of petrol fell, as earlier mentioned, by 8.0 per cent whereas in July 2000 the prices only decreased by 0.9 per cent.

Tax changes in the CPI

The VAT (value added tax) reform was implemented on the 1st of July. The general VAT rate on food and non-alcoholic beverages decreased from 24 to 12 per cent, and general VAT was introduced on a number of services. The VAT reduction on food and non-alcoholic beverages are estimated to cause a decrease in the price growth by 1.2 percentage points, while the VAT introduction on services contributes 0.2 percentage points to the price growth in July. The estimates are based on an assumption of direct and full transfer of indirect taxes and subsidies to the consumer prices that are directly affected.

Former model-based estimates show that the change in the general VAT rate from 23 to 24 per cent that was introduced at the turn of the year and the VAT reduction is estimated to decrease the year-to-year growth in July by 0.4-0.5 percentage points. Without the VAT changes and changes in other taxes the year-to-year growth is estimated in July to 3.2 -3.3 per cent.

The year-to-year change in the CPI excluding electricity was 1.3 per cent in July, while the CPI excluding energy products was 1.8 per cent. Excluding taxes and energy products, the CPI would have risen by about 2.2-2.3 per cent in July.