OREANDA-NEWS. April 08, 2009. Andres Saarniit, Adviser to the Economics Department of Eesti Pank.

Since a lot of enterprises are forced to drop prices due to the recession, the price level has been declining over the past five months. According to the Statistical Office, the consumer basket cheapened by 0.5% in March. The year-on-year price growth declined to 2%. Euro-area countries, where the annual consumer price growth slowed to 0.6% (according to preliminary data), are also characterised by unusually low inflation.

The decrease in prices was broad-based, since energy, food and services all cheapened month-on-month.

Thermal energy price continued to decrease in several regions of Estonia. The contribution of household energy to the consumer basket cheapening was the largest (over 40%). Thermal energy price may continue to decrease in the next months arising from the declining imported fuel prices.

The recession is causing the volumes of retail sales and industrial production to contract and weaker demand is reflected in the price of many goods and services, including food prices. As regards services, it is important to note the low in the real estate market is more and more strongly manifested also in the consumer basket. For instance, rent prices have cheapened by 27% over the past half a year.

The trend of declining prices will persist in the next months, though the price fall will no longer be so rapid. The longer-term inflationary outlook depends to a great extent on energy price fluctuations in the global market.