OREANDA-NEWS. December 16, 2013. Data from Statistics Estonia show that the consumer price index was 0.4% lower in November than a month earlier and 1.5% higher than a year earlier, like in October.

Several favourable conditions combined to keep inflation low, the main one of which was the low inflation in the external environment and particularly the cheaper prices for imported energy, which left prices for motor fuels 4.5% lower than a year earlier and heating energy 3% lower. Inflation in the euro area rose to 0.9% in November, though price rises were held down not only by energy prices but also by the high levels of unemployment and the consequent low level of pressure on consumer prices coming from wage costs.

Food price inflation in Estonia continued to fall in November as good weather brought larger harvests than in previous years in many agricultural regions around the world. Food prices were 1.3% higher than in November of the previous year. This mainly affects unprocessed food such as fruit and vegetables, where inflation was still particularly high in the first half of the year. However, inflation for processed foods is picking up from its current low rate and increased demand is expected to start to push prices of processed foods up faster next year both in Estonia and in the global market. Prices for food including alcohol and tobacco were 2.2% higher in November than a year before due to the impact of excise taxes.

Core inflation, which covers manufactured goods and services that make up 51% of the consumer basket, was very low in November at 0.3%. At a time when the prices of non-energy industrial goods were falling in many euro area countries, there was moderate price growth in Estonia which reached 0.7% in November. The fall in the prices of imported goods offset the effect of domestic wage growth to a large extent.

Price rises should be restrained in future by the arrival of additional retail space, which will intensify competition in the domestic market. Given that wage growth accelerated to 8.8% in the third quarter, inflation of close to zero in the prices of services in November was unusually low. Services inflation was pushed down by the introduction of free services and a fall in the prices of communications, and without these lower communications prices, service price inflation would have been 0.6 points higher. These factors will have a reduced effect in the coming months, meaning that prices for services are likely to rise faster as early as the start of the new year.