Martin Lindpere, Eesti Pank, economist

Based on the data of Statistics Estonia, the cost of the Estonian consumer basket decreased by 0.6% in January. Year-on-year, prices have risen 4.1%.

The start of the year has shown a growing number of companies are responding to the changing economic environment by price adjustments. Prices have contracted more than one per cent over the past three months. Thus, inflationary pressures continue to follow a downward trend.

The consumer basket cheapened irrespective of several administered price rises at the beginning of the year. For example, a higher VAT rate was applied to a number of cultural and accommodation services, medicines and periodicals. Meanwhile some of monopoly housing-related services providers sped up price increases, which is not in line with the current economic situation. Linking prices to past inflation, as has been the case with water, should be avoided, since it reduces the ability of the economy to adapt to the rapid changes.

A significant contribution to the cheapening of the January consumer basket was made by discount sales, which started at end-2008 and are much more large-scale than a year ago. Clothing and footwear trade underwent probably the fiercest discount campaign of all times. However, compared to several Western European countries our seasonal price mark-downs are still smaller and cover a narrower range of goods.

Mostly owing to the falling motor fuel and other commodity prices in the global market, the cost of dairy products and transport services is expected to drop in near future. The cheapening of energy carriers has not yet passed through to the thermal energy end-consumer prices, but these should start to decline over the next months, since the price of imported natural gas is falling.

Inflation will continue to moderate and Eesti Pank's base scenario projects this year's inflation rate to drop to 2%.