Prices decreased in November

• Deflation continued for the 6th month
• Lower energy prices contributed the most
• Prices will decline in the coming months

According to Statistics Estonia, in November, consumer prices decreased by 0.8% compared with the previous month and by 0.6% compared with the same month one year ago. Prices were pushed down the most by cheaper energy. In November, motor fuel was 4.4%, electricity 6.6%, and heat energy 1.3% cheaper than one year ago.

Oil market is over-supplied of oil and oil production has not decelerated yet, although profit margins are declining. There is an intensified competition for market shares that resulted in the OPEC’s inability to reach a consensus on cutting the production quotas of its members at the end of last month. That pushed oil prices further down. In the euro area, the sharp decline in the price of oil in US dollars has been softened by the weakening of the EUR/USD exchange rate (7.6%, year-on-year, in November).

Motor fuel prices in Estonia have decreased less than the global price of oil in euros because oil price is only one component in the retail price of fuels. Around half of the retail price of motor fuels consists of taxes. Secondly, it takes time until the changes in the global prices of crude oil feed into the prices of oil products of Estonian fuel importers.

The much-talked-about embargo of certain agricultural products by Russia has had an impact on Estonia’s agricultural output prices, but less so on the retail prices of food products in shops, at least so far. When the consumer prices of meat products continued to decline in November, retail prices of milk products were still higher than one year ago.

Deflation will continue in Estonia in December due to cheaper energy. In 2014 as a whole, consumer prices will decline by 0.1%.

Source: Swedbank

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