Cheapening oil accelerated the fall in CPI

According to Statistics Estonia, January witnessed a drop of the consumer price index (CPI) of 0.4 per cent as compared to December. Year-on-year, the fall in consumer prices accelerated to 1.3 per cent.
The continued fall in energy prices also accelerated the fall in consumer prices also in the rest of the eurozone. According to the flash estimate, the eurozone CPI dropped by 0.6 per cent.
Similarly to earlier months, the principal factor that affected the price level continued to be the cheapening of oil. Oil prices reached their lowest level in six years in January. During December and January, oil prices dropped as much as 40 per cent, and this has caused a fall in consumer prices in most European countries. The fast decline of oil prices is caused by record oil production in the United States, the decision by OPEC not to cut production, and a slower-than-expected growth in the consumption of oil products.
The exchange rate of the euro against the US dollar slid by as much as 6 per cent in January, dampening the fall in fuel prices somewhat. Nevertheless, the fall in fuel prices accelerated in Estonia to nearly 20 per cent in January. This constituted the lion’s share of the decline in the consumer price index (-1.1 percentage points of the total -1.3 per cent). Other energy products that also dropped in price in January included gas and electricity. While gas prices dropped due to the cheapening of oil, average electricity prices dropped due to the imports of cheaper electricity from the Nordic countries into Estonia.
As global food prices have dropped, food in Estonia is, on average, nearly 2 per cent cheaper than a year ago. The fall in prices is broad-based, with the largest part coming from the prices of vegetables. The rise in alcohol prices is due to the end of discounts as well as the rise of the excise duty rate at the beginning of the year. Due to stocks accumulated at the end of last year and sold in the first months of the year the increased rate of excise duty has yet to show its full effect on prices.
Consumer prices will continue to fall in Estonia due to exceedingly low oil prices. The CPI is expected to rise again in the second half of the year.
Source: Kristjan Pungas, analyst at the Fiscal Policy Department, Ministry of Finance 
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