The weak external environment is holding inflation down in Estonia
Data from Statistics Estonia show that consumer prices in Estonia were 0.3% lower in December than in November. The biggest changes came from the cut in the water tariff in Tallinn, falling prices for electricity and communications services, and the after-effects of the cut in alcohol excise. In yearly terms inflation in Estonia was 1.8% in December. Inflation pressures were weaker than usual in the final months of the year and the average of the consumer price index for 2019 was 2.3% higher than the average for 2018.
Last year was a complicated one for many businesses. Wages had to be raised for staff, but many companies were unable to raise prices at the same time. The problems were particularly apparent for exporters, as they are mainly price takers in foreign markets. The general fall in export prices and the depreciation of the euro against several other currencies increased the stresses.
There will be a lot of fluctuation in the inflation rate in the coming months, but inflation will still remain modest. The main risks come primarily from further movements in the oil price, and more generally from pressures in wage and price setting. Eesti Pank forecasts that the average rise in consumer prices in 2020 will be ca 2%.
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