Martin Lindpere, Eesti Pank, economist
According to the data of Statistics Estonia, the cost of the Estonian CPI basket increased in October by an average of 0.4%. Year-on-year, price level in Estonia has risen by 9.8%. The price rise of the past half-year has, on the other hand, been only 3.1%, referring to the inflation rate dropping vigorously also in the months to come.
The inflation of food, services and motor fuel continued to decrease in October. Motor fuel underwent another steep monthly contraction, declining by 7.5%. Though global-market commodity prices kept fluctuating last month, the downward trend persisted. Price pressures are easing swiftly in light of the impending recession in advanced economies.
The global-market prices of energy carriers started to fall in summer, and this trend continued in October, whereas the cost of natural gas and thermal energy sold in Estonia rose by 23%. The price of natural gas in Estonia depends on the past six months' average price of energy carriers in the global market. Thus, here the first signs of declining natural gas and thermal energy prices should appear at the beginning of 2009.
Crude oil price, which has been high almost the entire year, has passed through to the cost of other goods and services. The impact has been the most evident as regards the price of transport services, which has gone up by nearly a fifth over the year. The current cheapening of motor fuel has provided an opportunity for downward price adjustments, but enterprises have not yet been too eager to use it. Compared to the same time previous year, food commodities have also cheapened in some places. These corrections should soon reach also the Estonian over-the-counter prices.
Economic downturn in Estonia has forced local retailers to considerably adjust the price-setting policies applied during the boom period. This, however, has not yet been able to alleviate consumer uncertainty. Demand has contracted most as regards durable goods and less with respect to staple goods.
According to the forecast of Eesti Pank, inflation will be 10.7% this year and 4.8% next year.
