Swedbank flash comment: Estonia

SwedbankCheaper energy behind deflation

• Consumer prices dropped further in August
• Cheaper energy behind the decline in prices
• Inflation expected at -0.2% in 2015 and +1.9% in 2016

August deflation numbers were in line with our expectations. In August 2015, consumer price index fell by 0.3%, month on month and also year on year. Compared to August 2014, goods were 0.7% cheaper and services 0.4% more expensive.

Consumer prices have decreased for more than a year. Consumers, however, do not realise that. According to a survey by the Estonian Institute of Economic Research, only 6% of consumers feel that consumer prices have decreased during the past 12 months and only 2% expect prices to fall during the next 12 months.

Consumer prices declined due to lower energy prices. Motor fuels were 14%, heat energy 5%, and electricity 4%, cheaper than one year ago. On global markets, crude oil prices were around 40% lower than one year ago in EUR (around 50% cheaper in USD, yoy).

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Due to cheaper energy, 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. In 2016, consumer prices are expected to grow by 1.9%, of which 0.6 percentage point is a direct impact from higher excise taxes on alcohol, tobacco and motor fuels.

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