Prices fell by more in Estonia than in the euro area in May
The consumer basket was 1.7% lower in price in May than a year earlier, and 0.7% lower than in the previous month. Prices in the euro area rose by an average of 0.1% in May, as inflation remained modest in several large countries.
Prices fell more in Estonia in May than in any other country in the euro area. The fall of 14% in energy prices in Estonia was almost the same as in other countries, but prices for services decelerated more sharply. Accommodation services were 19% cheaper than a year earlier as the tourism sector was hit hard by the coronavirus. Rent prices have also fallen rapidly as the incomes of consumers have dropped. Rents have fallen by 13% in the past two months.
Government tax policy also contributed a lot to the fall in prices in Estonia. Lower rates for excises on diesel fuel, natural gas and electricity started to apply from May. The cut in alcohol excise that came in last July also continues to pull inflation down. The total downward impact on inflation of the cuts in excise is currently 0.6 percentage point.
Falling demand is making manufactured goods cheaper as sales volumes at retailers have fallen by more than a tenth. Increased uncertainty has led many consumers to decide to wait before purchasing, and so the number of real estate transactions has dropped substantially.
Eesti Pank will publish a new economic forecast on 10 June.