Consumer prices declined more than expected

Deflation was deeper than expected in August due to surprisingly low prices of heating and motor fuels. CPI declined by 0.7% compared with last year’s August and 0.3% compared with July.

Consumer prices were pushed down the most by cheaper prices of food, housing and transport, year-on-year. Vegetables were remarkably cheaper because of favourable weather, whereas milk products’ prices remained higher than last year despite the sanctions by Russia, at least in the middle of the month, when price data was collected.

Warm weather, better connectivity with the Nordics and lower prices of electricity network fees led to cheaper electricity and heating. The prices of transportation decreased as the prices of motor fuels fell. Fierce competition pushed down the prices of mobile communication services and public higher education reform lowered the prices of education.

Deflation is expected to continue at least in September as a decline in food and energy prices will last for another month. Global oil prices decreased at the beginning of September due to a high level of reserves, even when geopolitical tensions have increased in the Middle East as well as Ukraine. Inflation should remain at around 0.3% in Estonia in 2014 as a whole.

Source: Bank of Estonia

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