Martin Lindpere, economist of Eesti Pank
According to Statistics Estonia, the Estonian CPI decreased by 0.2 per cent in December. The growth rate of CPI declined to 7 per cent compared to December 2007. Average inflation for 2008 stood at 10.4 per cent, which is in line with Eesti Pank's forecast for 2008.
External inflation pressures have also eased. Euro area inflation declined considerably in December: from 2.1 per cent in November to 1.6 per cent.
Estonia's economic growth is negative, similar to the external environment. In earlier periods, the increase in costs was passed on to consumers, whereas now there is more pressure for efficiency improvement. This means that inflation will slow further.
Corrections of the robust price rises carried out at the time of strong growth were evident already at the end of 2008. The start of 2009 has witnessed further corrections through seasonal sales. The extent of price corrections has been shaped by the increasingly low levels of consumer confidence indicators. Inflation expectations have sunk to record lows as well.
Similar to previous months, in December Estonia's inflation was reduced by the continuing drop in fuel prices. Earlier price rises that had stemmed from growing oil and other commodity prices are expected to be reversed. This concerns the prices of thermal energy, transport services and various dairy and cereal products, for instance.
Eesti Pank expects the inflation for 2009 to be lower than the 3.7 per cent set out in the autumn forecast.
