February saw a moderate price rise



Martin Lindpere, Eesti Pank, economist

According to Statistics Estonia, the cost of the consumer basket grew by 0.2% month-on-month in February and the price level decreased by 0.1% year-on-year.

Since the major price drops of the first half of 2009 are this year being replaced by modest increases, the inflation rate will be lower in the coming months compared to the same period a year ago. Prices will increase due to the rise in excise duties as of January 2010 and also because of the growing cost of energy carriers in the global market, which will cause the price of thermal energy to go up in the months to come. In addition, compared to global-market prices, the gap of the motor fuel price less taxes has been wider at the beginning of 2010 than the average of previous years. At the same time, the disposable income of households continues to shrink, so there are downward pressures on the prices of the rest of the goods and services.

According to Eesti Pank's autumn forecast, the annual average price level may decline by 0.4%. The price level in Estonia has been going up for quite a long time along with the surging GDP. The purchasing power of the residents of Estonia was 67% of the EU average in 2008, but it dropped in 2009. As a result, the relative price level is not expected to grow here in the near term. The price level had reached 70% of the EU average by 2008.

The price level of food was 81% of the EU average in 2008. Estonia stands out among the Central and Eastern European countries for the high price level of consumer services, and housing related costs are also considerable. At the same time, the price level of our government sector services is comparable to that of other countries. Clothing and footwear are relatively expensive in Estonia - the price level of the latter exceeded the EU average by nearly a sixth in 2008.

At the start of this year Statistics Estonia started using new consumer basket weights to measure inflation. These are based on households' 2009 purchases, which underwent some changes in their structure. Consumers have cut expenditure on leisure time, eating out, accommodation and purchasing durable goods. Looking at basic commodities, the share of food and non-alcoholic beverages has increased in the consumer basket, accounting for slightly below 25% of the total expenditure. The share of housing-related costs soared as well, since it is difficult to quickly curb costs on such goods and services.

Further information:
Viljar Rääsk
Public Relations Office
Telephone: +372 668 0745, +372 527 5055
E-mail: viljar.raask@eestipank.ee