Martin Lindpere, economist of Eesti Pank

According to Statistics Estonia, the cost of the Estonian CPI basket remained unchanged in June. The price level was 0.9 per cent lower compared to June 2008. Euro area inflation was at a historical low, being 0.1 per cent down from a year ago.

The export outlook of Estonian enterprises is still bleak and the decline in household incomes also inhibits growth in the domestic market. Consequently, the prices of several goods decreased further in June. In addition, a seasonal drop in food and clothing prices could be noted. However, the rise in motor fuel prices increased the general price level by around 0.4 per cent.

The prices of various services went up in June, partly owing to the price hike of notary fees. Offsetting the decrease in incomes (which has resulted from the current market low) by a rise in prices is exceptional and possible only in these segments of the economy where market forces are weak. This applies to most of the public utility services, public transport and the energy market, where prices have not yet come down from the peak. Administrative price-setting must be flexible and take into account the general economic situation, the level of expenditure and the principle of efficiency. Therefore, the rise in VAT should not be fully passed through to the consumer.

The fees of banking services have gone up approximately 10 per cent over the past three months. Although this does not make a substantial contribution to the general price rise, it indicates that banks are offsetting the decrease in incomes from other sources.

In June, the Government decided to implement a number of tax changes, which may affect inflation both this year and the next. However, these changes will not jeopardise the coming period of low price pressures.

Based on preliminary estimates, the average annual inflation rate will be 0.5 per cent; that is 1 percentage point higher than expected in the spring forecast of Eesti Pank. The next inflation forecast of Eesti Pank will be published in October.