OREANDA-NEWS. January 14, 2014. Data from Statistics Estonia show that inflation stood at 1.4% in December and that prices were 0.1% lower than in November. Prices for transport rose more than any other from their November levels, but this was offset by a lower cost of living for households.

Inflation for the whole of 2013 in Estonia stood at 2.8%. Although inflation was above 3% in the first half of the year it started to fall in the summer and by September it had reached its lowest level for three years. The decline in inflation was mainly due to slower price growth in the external environment, which was passed on to Estonian consumers through imports. Lower prices for imported energy and imported food products had a major impact in the second half of the year. The cost of the consumer basket has fallen steadily in monthly terms over the past half year, mainly due to the fall in the price of imported energy.

Core inflation, which is based mainly on domestic factors and covers the consumer basket without energy and food, was only 0.8% last year. Core inflation was restrained to a notable extent by the fall in the prices of communications, and also by the change to free services for higher education and Tallinn city transport, and without these inflation would have run at 3.8% in 2013. Price rises were also restrained by the existence of sufficient available production resources, which meant that the cost pressures for companies were somewhat reduced. However, wage costs increased as the rapid rise in employment reduced the available supply of labour and so competition for labour intensified.

Preliminary estimates indicate that inflation fell in the euro area in December to 0.8% and the average for the whole of 2013 in the euro area was 1.3%. Prices fell in several euro area countries at the end of the year, but deflation was only an issue in those countries most affected by the economic crisis. In 2014 inflation should remain low as the economy recovers slowly and the European Central Bank forecasts that inflation will be 1.1% in 2014.

Eesti Pank’s forecast expects consumer price inflation in Estonia to be 2.1% in 2014. Inflation is expected to continue falling at the start of the year as the impact of the opening of the electricity market a year ago disappears. Inflation will accelerate in the second half of the year due to higher prices for both imports and domestic output.