Analysts: Stores do not feel under pressure to lower prices

Shoppers at a self service checkout.
Shoppers at a self service checkout. Source: Priit Mürk/ERR

In April, prices rose 13 percent on year and 2 percent on month. Experts said this suggests traders and stores do not yet feel under pressure to lower prices.

Between January and March, prices rose approximately 0.7 percent on month, but between March and April, the increase was measured at 1.9 percent, preliminary data from Statistics Estonia show.

Analysts believe inflation should gradually slow month-by-month but last month's data bucked the trend. The underlying reasons will become clearer next week after more analysis, Tuesday's "Aktuaalne kaamera" reported.

Experts said traders probably still believe consumers are willing to keep paying higher prices.

"It seems to me that actually, yes, Estonia's own consumers still have enough [purchasing] power and money to consume goods and services at higher prices, and that gives traders the opportunity to raise prices," explained SEB economic analyst Mihkel Nestor.

Plane flying at high altitude (photo is illustrative). Source: Siim LõvI /ERR

Savings are being used to buy package holidays and fashionable goods even though, in Estonia, these areas have seen the biggest price hikes in the region.

Food prices also play a role but the limit is being reached, said LHV economic analyst Kristo Aab.

"One thing that could certainly cause a change in the monthly rate is that the end of March saw the end of energy cost reimbursements, which meant that people's electricity, gas and heating bills all went up," said Aab.

Tõnn Talpsepp, an economist at TalTech University, said inflation is not expected to drop quickly.

"In all likelihood, it will not remain so high. But are all the conditions in place for it to start falling quickly? The answer is, not at the moment. For example, if we look at the tax policy side, we are facing a VAT increase. That alone will raise inflation expectations to a certain extent, and inflation expectations normally also raise real inflation," he explained.

Talpsepp said there has not been a dip in Estonian people's savings but there is no increase either.

Nestor noted that since retail sales have fallen, at some point, customers will start to disappear and this should start to bring prices down.

"Then it's not going to be possible to raise prices that much. Rather, you could see an increase in competition for those remaining customers, and that in turn could dampen inflation a bit," said Nestor.


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Editor: Helen Wright

Source: Aktuaalne kaamera

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