Bank of Estonia: Deflation to continue for rest of this year

Bank of Estonia coat of arms.
Bank of Estonia coat of arms. Source: Siim Lõvi /ERR

Deflation in Estonia is set to continue into 2021, only to be replaced by inflation, the central bank says.

Sulev Pert, economist at the Bank of Estonia, made the comments Friday following the release of data from state agency Statistics Estonia.

As reported on ERR News, the consumer price index (CPI) for October 2020 was 0.5 percent lower than the figure for September, and 1.5 percent lower on year.

"Energy prices were 9 percent lower than a year earlier in October as prices fell for motor fuels and electricity," Pert said, in a Bank of Estonia press release.

"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 percent over the year, prices have fallen by less in Estonia than in neighboring countries," Pert went on.

The fall in services prices in October at 2 percent was one of the biggest drops ever, Pert added, fueled by the COVID-19 pandemic and the decline of tourism.

These prices falls have come at a cost of their own, however, Pert said.

"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 labor costs."

Hotel prices were however reported at 16 percent lower on year in October, with the figure for transport services only just behind, at a 13 percent fall.

The prices of consumer goods were also a little lower in October, down 0.5 percent on the year, but retail sales have been strong.

This may be partly because the euro's exchange rate has appreciated against the currencies of European trading partners, Pert added.

The Bank of Estonia's forecast is for consumer prices to decline by 0.5 percent in Estonia this year, with inflation to make a return in the first half of 2021, averaging 0.6 percent over 2021.

The Bank of Estonia is to publish a new economic forecast on December 16, BNS reports.


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Editor: Andrew Whyte

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