Data from Statistics Estonia show that the consumer price index was 0.6% lower in September than a year earlier, and prices for goods and services were 0.2% lower than a month earlier. As in summer, the fall in prices in the consumer basket was mainly driven by cheaper energy, though the fall in prices in general was smaller than that in August because food prices picked up again after two months of decline. Prices have risen only a little outside Estonia too, and preliminary assessments show that harmonised consumer price inflation for the euro area was 0.3% in September.

The fall in prices in Estonia has become broader based in recent months, as almost half of the value of the consumer basket was subject to falling prices. This is only slightly less than during the worst point of the recent economic crisis. The current situation differs from that during the crisis though, in that every other product or service was falling in price in 2009, but last month it was only one in three. This means the contribution of individual components to the falling prices was relatively large, with electricity and motor fuels each bringing inflation down by 0.3 percentage point, and cheaper heat energy reducing it by 0.2 percentage point. Motor vehicles also made a large contribution to the fall in overall price levels. Prices for services continued to be held down by the effect of free higher education, which knocked 0.4 percentage point off inflation.

Eesti Pank forecasts that inflation for 2014 will be 0.1%. This assumes that energy prices will fall more slowly because of the change in the comparison base from a year ago and because of the weakening of the euro against the dollar. At the start of October the euro fell against the dollar to its lowest rate since the middle of 2012, having fallen by some 8% in the last three months alone. The European Central Bank calculates that a lasting change of 10% in the exchange rate leads to a change of 0.4-0.5 percentage point in inflation. This means that if the current exchange rate is maintained, inflation in the euro area could pick up significantly from the very low rate it has been at, and inflation in Estonia could also accelerate. The fall in the euro exchange rate has already boosted prices of imported energy, but this has been offset by a fall in the global price of oil, which is traded in dollars. The depreciation of the euro will also help to improve the export capacity of euro area countries, and should have a positive effect on economic activity in the single currency area and raise inflation through higher demand.

Photographs of spokespeople from Eesti Pank can be found in the photo bank at www.eestipank.ee/press/fotopank . 

For further information:
Ingrid Mitt
Public Relations Office
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