Prices will fall until the start of the new year
Data from Statistics Estonia show that consumer prices in October were 1.5% lower than a year earlier. Prices have fallen over the year for energy, services and consumption goods, while prices for food continue to rise.
Energy prices were 9% lower than a year earlier in October as prices fell for motor fuels and electricity. At the same time, heat energy prices continue to rise in Estonia, in contrast to Latvia and Lithuania, where heat was already cheaper by more than a tenth in September. Although prices of motor fuels have come down by 16% over the year, prices have fallen by less in Estonia than in neighbouring countries.
The fall in prices of services over the year in October was one of the largest ever at around 2%. The second wave of the coronavirus has meant that prices for tourism services have dropped rapidly, with hotel prices 16% lower in October than a year earlier and prices for transport services 13% down. The absence of tourists has particularly hurt restaurants and cafes, but their prices have not particularly changed over the year. The downside of lower prices is rising unemployment and falling wages in sectors hit hard by the crisis as companies come under pressure to reduce labour costs.
Prices of consumer goods were also a little lower in October, down 0.5% on the year, but retail sales have been strong. One reason may be that the exchange rate of the euro has appreciated against the currencies of trading partners.
The Eesti Pank forecast expects consumer prices will fall by 0.5% this year. Inflation will start to pick up in the first half of 2021, and will average 0.6% over the year. Eesti Pank will publish a new economic forecast on 16 December 2020.