OREANDA-NEWS. February 25, 2014. Inflation in Estonia continued to slow in January, declining to 1.1% according to data from Statistics Estonia, while prices were 0.4% higher than in December. Preliminary assessments show that average annual inflation in the euro area slowed in January from 0.8% to 0.7%.

The causes of the slowdown in inflation in Estonia were similar to those in the other countries of the euro area. The lower rate of inflation was mainly a consequence of lower prices for energy, notably a fall of 3.1% in prices for motor fuels and of 1.5% in the price of district heating. The slowdown in inflation in Estonia was to a large extent a reflection of the sharp rise in electricity prices a year ago passing out of the comparison base, with the result that the price of energy consumed fell.

This is why inflation fell despite the faster rise in the prices for the rest of the consumer basket. In recent months falling prices have been seen over a slightly broader base in Estonia as 15 other groups of goods and services alongside energy saw lower prices in January, affecting around one third of the consumer basket in total. Among these were several manufactured products and food products.

Food products as a whole were 3.2% more expensive in January than a year earlier. Price growth was maintained by a seasonal rise in the prices of fruit and vegetables and by an increase in alcohol excise. The rise in tobacco excise will most likely be passed into consumer prices during the next three months because of stocks in warehouses, as happened last year. Prices for food commodities fell on world markets in January, with rises in only some product groups, notably dairy and meat products.

Core inflation in Estonia without energy and food accelerated to 0.8% in January from 0.4% in December. Core inflation was mainly pushed up by price rises of 4% for services other than communications. With communications included, services inflation was 1.2% in January. Factors holding down core inflation other than the fall in communication prices were weak economic activity in Estonia's neighbours and a strengthening of the euro over the year. However core inflation rose by an estimated 0.3 percentage points as the effect of free public transport in Tallinn passed out of the calculation. The slowing of inflation in clothing and footwear prices since autumn was noteworthy among prices of manufactured goods.

Eesti Pank’s forecast expects consumer price inflation in Estonia to be 2.1% in 2014.