Inflation remained modest in January
Data from Statistics Estonia show that the yearly rise in the price of the consumer basket slowed to 1.6% in January. Consumer prices were 0.4% lower in January than they were in December. The fall in prices over the month was due to cheaper electricity and garments and footwear. Prices for those goods fell by more than the usual seasonality in January. Inflation for services remained fast though, as many companies adjusted their prices at the start of the year.
Inflation in external markets has been held down in recent months by temporary factors. The price of electricity on the Nordic exchange was extraordinarily low in January because of the warm weather. Limited transmission capacity meant that the very cheap electricity did not reach Estonian consumers in full, but the price of electricity was still 18% lower than a year earlier. Motor fuels were 13% more expensive in January than they were a year earlier, but at the end of January the price of oil came down substantially, partly because of the spread of the coronavirus, and this should be passed on into consumer prices in February.
Inflation may accelerate for food products this year, as the price of food commodities on the global market has risen to its highest level since 2014 according to data from the Food and Agriculture Organization (FAO) of the United Nations. The most recent statistics show that food products make up more than a quarter of the consumer basket, and so they affect the fluctuations in the inflation rate more than many other components do. The share of alcohol in the Estonian consumer basket continues to be one of the highest in the European Union at 4%, or even at more than 5% if consumption by tourists is included.
Consumer prices will rise more slowly this year than last, and Eesti Pank forecasts that inflation will remain close to 2%.