On Monday, Statistics Estonia said it is analyzing shortcomings in the current calculation of the electricity price index and is developing a new methodology based on more detailed data.

Minister of Finance Jürgen Ligi (Reform) said the price of electricity has been overestimated in terms of both price level and weight in the calculation of the consumer price index.

"The overestimation lies in the fact that electricity accounts for less than 4 percent of household costs and less than 1 percent of company expenses. /.../ The methodological problem began with the fact that the entire increase in electricity prices was based on the multiplied exchange price, not the average price," he said.

Lauri Veski, head of the consumer price statistics team at Statistics Estonia, noted that so far, the prices used to calculate the index for fixed-price electricity packages have been those available to new customers, not those under existing contracts.

During the energy crisis, fixed package prices were used in the calculations, which meant that the index no longer fell along with the electricity market price.

"If we had not started taking fixed packages into account in the meantime, the electricity price index would likely have fallen again, but that would not be a sustainable solution, since a new energy crisis could again excessively inflate the index. That's why we started looking for more permanent solutions," he said.

Michal said that Statistics Estonia, with the help of analysts from other institutions, has discovered errors in how price statistics are compiled, and those errors now need to be corrected.

"At least the first indications are that the statistics have underestimated our economic growth and overestimated price growth, but let them make the necessary corrections, and the sooner it aligns with reality, the better," he said.

The prime minister added that if Estonia's inflation has been overestimated in the statistics, it has had a real impact on the population.

"It has had a real effect on people's lives. Rental contracts are linked to it in some places, some companies have land use agreements tied to it, and in some other fields, such as transport subsidies, it has contributed to additional price increases. So refining the analysis and bringing it up to date could be one of the most important changes in the economic and financial sector in Estonia in recent years," Michal said.

The consumer price index is also one of the components used for the annual indexation of pensions. Michal noted that this could be considered a positive aspect if it has helped Estonia's own pensioners cope better.

"But it has also had an impact on the economy as a whole. In some areas, it has likely caused prices to rise more quickly, and may also have shown lower economic growth at times when the economy had actually grown more than we thought. So its broader impact is likely much greater than we can fully grasp at the moment," the prime minster told ERR.

Food prices also a problem

The finance minister noted that in addition to the overestimation of electricity prices, the measurement of food prices is also a problem in calculating the consumer price index (CPI).

"We have made radical changes here to discover actual prices, not shelf prices. The chicks are only just hatching. The measurement problems are diverse, but the mere fact that hundreds of thousands of pensioners can buy food at a 10 percent discount on certain days, while the rest of the buyers must pay the regular price, drives up our shelf prices and makes the CPI higher than it actually is," Ligi said.

The minister said the cost of home acquisition also needs to be reviewed.

"For example, the inflation figure includes the price of people's own homes. Compared with Lithuania or Poland, it is implausibly high, and experts also have doubts about the comparability of our other price statistics," he noted.

Lauri Veski of Statistics Estonia said the new model for calculating the electricity price index is planned to be implemented next year.

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