Cheap oil continues to drive prices down

Sulev Pert
Sulev Pert
Economist at Eesti Pank

Data from Statistics Estonia show that consumer prices were down 1.1% over the year in November. Prices for energy were 8% lower than a year earlier and prices for services were down 0.3%, while prices for food products were 0.8% higher.

Prices for motor fuels were down 16% on a year previously and they made the largest contribution to the fall in the consumer price index, lowering it by 0.9 percentage point. Prices for services are usually lower in November because of seasonal factors, but this year there was no fall in price. Prices for tourism services, especially accommodation services, were already very low because of the crisis and so there was little room for them to fall any further. The largest rises in prices that were caused by the costs from the spread of the coronavirus were of 8% for dental surgery and 10% for social care. A new factor was that the price of banking services rose by 8% over the month in November.

The fall in prices has been encouraged by the reduction in labour costs. The payroll contracted broadly and relatively quickly in the second quarter, when the coronavirus crisis started, as staff numbers were reduced and wage rises slowed. As economic activity has declined and so demand for labour has fallen, the position of employees in wage negotiations has weakened and the rise in pay will remain modest in the near future. There will be more economic momentum next year to start a new cyclical upswing, and consumer prices will start to rise gradually. Inflation may already be close to 2% in the second quarter of next year.

Additional information:

Viljar Rääsk
Head of Communications
Eesti Pank
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Email: viljar.raask [at] eestipank.ee
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