Prices continued to fall in June because economic activity was weak
Economist at Eesti Pank
Consumer prices were down 1% over the year in June, but the price level was 0.9% higher than in May.
A large part of the rise over the month came from the electricity price rising, which contributed 0.5 percentage point, while the ending of the measures related to the emergency situation also contributed. The price of electricity rose sharply throughout the Baltic states in June because of a fault in the Lithuanian undersea cable. Limited transmission capacity raised electricity prices by 13% for household consumers. The price statistics for electricity in Estonia have been very volatile because Estonian statistics do not cover Eesti Energia’s fixed-price electricity contracts but only the changes in prices on the electricity exchange.
Prices of food products were higher than a year earlier, while electricity, consumer goods and services were all cheaper than a year before. The biggest rises for food products were in the prices of fruit and meat products. Prices for food commodities have fallen a little in recent months on the European Union’s internal market though, and that should be reflected in consumer prices in the coming months.
Prices for services continued to fall because the tourism sector has been hit hard by the coronavirus crisis. Accommodation services were around 30% cheaper than a year earlier, while inflation has slowed in restaurant prices and the earlier rapid rise in the price of package holidays has stopped. Surveys from the Estonian Institute of Economic Research show that companies in the service sector are pessimistic and expect prices to continue falling.
The strong stimulus given by the government has softened the downturn in the economy and so also the fall in prices. Retail sales have recovered rapidly after their steep fall in recent months. Economic activity is generally recovering slowly though, and that will hold inflation down throughout the second half of the year.
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