The January price level was affected by excise duty increases

Martin Lindpere, Eesti Pank, economist

According to Statistics Estonia, the cost of the consumer basket rose by 0.4% in January on December 2009. Nevertheless, the price level was 0.7% lower year-on-year.

Excise duties on alcohol, tobacco, motor fuel and electricity were raised as of 1 January, so the retail prices of some goods and services went up in the course of the month, increasing the cost of the consumer basket by 0.4%.

Eesti Pank's study on price setting shows that prices are more likely to be reviewed in January rather than in other months. However, prices did not change considerably this year due to the weak demand environment. Leaving aside the rise in excise duties, the January price level did not differ much from that of December.

The increase in excise duties will continue to pass through to retail prices over the coming months, because large stocks were accumulated at end-2009. This is most of all true for tobacco products (their price remained at a similar level on December) and alcohol.

Seasonal discounts decreased the cost of the consumer basket. For example, the price level of clothing and footwear fell by 3.8% and leisure goods cheapened by 1.1%. However, the decline in prices was smaller compared to January 2009, when it was 5% and 3%, respectively, on December 2008.

Compared to its peak of October 2008, the price level in Estonia has dropped by 1.8%. Goods have cheapened by 2.2% and services by 1.2% since then. In addition to lowering prices, enterprises have responded to the contraction in demand by cutting costs. According to statistics on enterprises, the sales revenue of companies decreased by an average of 23% in the first three quarters of 2009. Costs were cut by 20% over the same period, with labour costs declining by 16%.

As stated in Eesti Pank's autumn forecast, the price level measured on the basis of the harmonised consumer basket will decline by 0.4% in 2010.

Further information:
Viljar Rääsk
Public Relations Office
Telephone: +372 6680 745, +372 5275 055
E-mail: viljar.raask [at] epbe.ee