Prices in Estonia have reacted flexibly to the economic crisis
Economist at Eesti Pank
Data from Statistics Estonia show that consumer prices were down 1.1% over the year in September. The average fall in prices in September in the countries of the euro area was 0.3%. Prices for energy and services fell most, but inflation for food products has been decelerating gradually in recent months. Meat products and fruit have been the food products that have seen the main increases in prices on the internal market of the European Union.
The fall in consumer prices in Estonia has remained close to 1% in recent months. The economy has been notably more active recently and so prices have also stabilised. Estonia stands out among the euro area countries for its price flexibility. Falls in Estonia of 23% in hotel prices and 14% in rent prices in the August data were the largest in the countries of the euro area. Prices can be said to be flexible because at the peak of the crisis the fall in the Estonian economy was smaller than the average in the euro area.
Although the crisis is not yet over in the tourism sector, prices there have fallen to very low levels and there is probably little room for them to fall any further. Companies are now looking more for ways to reduce costs, and so companies in accommodation and catering currently employ around a fifth fewer people than a year ago.
The Eesti Pank forecast expects that consumer price inflation will pick up in 2021 to 0.6%. This assumes that the coronavirus outbreak can be brought under control and the negative impact on the economy eased. Consumer price inflation will still remain below long-term inflation, as Estonian consumer prices have risen by an average of 1.5% over the past five years. Consumer prices rose by an average of 2.2% a year over the past decade.
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