Having risen a long way over the year, prices for tourist services could be brought down by the virus
Data from Statistics Estonia show that yearly inflation rose in February to 2%. Inflation was driven by higher prices for services and food products, but was restrained by lower energy prices.
Weakness in global economic activity has reduced demand for oil, and brought down the price of it. The lower oil price was reflected in service station forecourts in Estonia in February, where prices were down around 3% over the month. The price of electricity on the Nordic exchange was very low in January and February, and so electricity was 13% cheaper than it was a year earlier.
Service price inflation remained high in February at 4%. Estonia differs from the other countries in the euro area for the rapid rise in prices for tourism services, as package holidays were some 30% more expensive in February than they were a year earlier. The spread of the coronavirus may soon start to slow inflation in tourism services though, as people travel less. Tourism affects the general consumer price level quite strongly through package tours, accommodation, transport and restaurants, as Estonian consumers spend around 6% of their income on tourism services.
The coronavirus may equally push prices upwards. Stoppages in international supply chains could raise the prices of consumption goods in countries that have not had any cases of the illness. In countries where demand for imported goods remains strong and the reduction in global output causes shortages, consumers will probably have to pay higher prices for several imported consumption goods.
Eesti Pank forecasts that the rise in consumer prices will be close to 2% this year. Eesti Pank will publish a new economic forecast on 2 April.