The decline in prices in March was the smallest of the year
- Prices are mainly lower than a year earlier because energy is cheaper
- Inflation for manufactured goods remains low because prices for raw inputs and levels of economic activity are both low
- Rises in food prices reflect the rise in alcohol excise
- Surveys show two-year expectations for Estonian inflation have remained relatively stable
Data from Statistics Estonia show the annual change in consumer prices to have been negative again, and prices were 0.2% lower than in the previous March. However, the price level was 0.8% higher in March than in February, and 0.7% higher in February than in January.
Energy costs for households came down further in the first months of the year as prices fell for heating and for natural gas. Energy prices were 8% lower in March than a year before, though motor fuels have gone up by around 6% from February because the excise rate was raised. A small contribution to inflation was made by the monthly rise in the global oil price.
Food prices were 1.7% higher in March than a year earlier, and they were also affected by higher excise rates. Alcohol should become 8% more expensive because of the rise in excise, and most of this rise had already been passed on into prices in March. Without the effect of alcohol excise, food prices rose in March by 0.5%, mainly because of fruit and vegetable prices.
Estonian core inflation, which is inflation without energy and food, was 1.1% in March. Rises in prices for services were somewhat more modest in March than in the fourth quarter of last year. Slower rises in prices for transport services have been helped by the indirect effects of the earlier fall in the price of oil, which were seen in the prices of road and maritime transport services. At the same time, rents and prices for leisure services have risen consistently by 4-5%, which is normal for Estonia and is a consequence of rising wages. Furthermore, the prices of air tickets have risen in recent months despite the fall in fuel prices.
Inflation for manufactured goods remained low at 0.1% in March because prices for raw inputs and levels of economic activity are both low. No sign of increasing price pressures has yet been seen, as producer prices of consumption goods fell by an average of 1.8% in the first two months of this year. However, the low exchange rate for the euro since the start of last year has raised the import prices of consumption goods. The euro fell by more than 10% against the dollar in 2015, but in the first months of this year it has been strengthening against the dollar again.
Surveys show two-year expectations for Estonian and euro area inflation have remained relatively stable at close to 2%. Analysts have still corrected their inflation forecasts for 2016 slightly downwards though.