Consumer prices down by 1.3 pct in January

• Deflation bigger than expected
• Cheaper motor fuels and food behind the drop in prices
• Inflation expectations are declining, but 53% of consumers still expect prices to go up in the future

In January, consumer prices decreased by 1.3% compared with the previous year and 0.4% compared with December. In January, prices were pushed down the most by cheaper motor fuels, which dropped by 20.7%, year-on-year, and 8.3%, month-on-month. In addition to transportation, the prices of food (mostly vegetables), housing and education declined.

Most of the consumers do not feel the decline in prices. Price expectations have decreased, but 53% of consumers still expect prices to grow and only 5% of respondents expect prices to decline during the next 12 months.

Prices, especially energy and food prices, will start to increase gradually during the second half of 2015. The price of crude oil is forecast to decline by around half in US dollars and by around one-third in euros in 2015, compared with 2014. However, the prices of motor fuels in Estonia are expected to decline much less, as taxes amount to half of the retail price of gasoline.

As Estonia’s economy is relatively energy intensive, most of the sectors’ competitiveness should improve. At the same time, a few sectors will lose out, i.e., the shale oil industry (around 2% of Estonia’s GDP).

Food prices are currently weak globally due to abundant supply and slower growth of demand in some leading importers, like China and Russia. Food prices are expected to increase in the second half of this year, when food demand will strengthen. The prices of imports will rise somewhat during the course of the year due to cheaper euro against the USD (-15%, year-on-year, in January).

Source: Swedbank

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