Deflation continues in Estonia

• Consumer prices dropped further in July
• Cheaper energy prices behind the decline in prices
• Inflation expected at -0.2% in 2015 (-0.1% in 2014)

Consumer prices decreased further in Estonia in July. CPI fell by 0.4%, month on month, and 0.3%, year on year. Consumer prices declined due to lower energy prices. Motor fuels were 12%, electricity 7%, heat energy 4%, and natural gas 20% cheaper than one year ago. On global markets, crude oil price was 38% lower than one year ago in EUR (-50% in USD, yoy).
Due to cheaper energy prices, deflation is expected to continue in the coming months. According to our estimates, CPI is expected to decline by 0.2% in 2015, after a marginal drop of 0.1% in 2014.

Cheaper prices benefit consumers but put additional pressure on producers. After the first six months of this year, producer prices in the industry have declined by 1.7%, year on year. During the same time period, export prices have shrunk by 3.8% and import prices by 3.3%. The decline in prices has been caused by modest demand on world markets, as well as an oversupply of commodities. The large drop in export and import prices in Estonia was caused by cheaper oil prices, which supressed the prices of Estonia’s petroleum products and, to a smaller extent, chemical products.

Source: Swedbank