Martin Lindpere, Eesti Pank, economist
Based on the data of Statistics Estonia, the cost of the Estonian consumer basket decreased by 0.3% in February. Year-on-year, prices have risen 3.4%. Price level in Estonia has dropped by 1.5% over the past four months.
Contracting economic activity continues to exert downward pressure on prices. Weak demand, caused by the global economic low, has resulted in the lower cost of many commodities and goods groups. Since the global economy has plenty of available production resources, goods are expected to continue to cheapen.
The recession is weakening demand in Estonia as well, thus the prices of more and more goods are being adjusted. Several services, such as taxi and accommodation services, rents, and eating out, have already reacted to deteriorating demand. However, it will take a longer time for the economic downturn to pass through to some utility services. With other prices falling, it is essential these services should also become cheaper.
The price of thermal energy dropped 5% in February and the downward trend will continue in the near future.
Due to oversupply and smaller buying-up prices, the over-the-counter prices of dairy products have declined as well, which is a very positive development. Dairy products cheapened by nearly 2% in the second month of the year. The prices of cereal and meat products, on the other hand, have fallen only modestly, which means a further decline is in store.
The trend of a decreasing price level in Estonia will continue in the months to come.
