TALLINN - With Estonia's inflation rate continuing to fall retailers have begun cutting prices, resulting in Estonia's consumer price index (CPI) showing the first signs of shrinking.
On Dec. 5 Statistics Estonia released a report showing that although the November CPI increased 8 percent year-on-year 's attributed primarily to higher housing costs, particularly the 59.2 percent increase in the price of heating 's there was a slight decline in the last month, with the most drastic figures appearing among goods and services.
November's 0.3 percent decline in CPI included a noteworthy reduction in fuel prices, which dropped 10.3 percent on month 's a clear sign the impacts of recession are affecting the Estonian public's spending habits.
According to Maris Lauri, an analyst at Swedbank, consumer prices will keep falling as long as the price of fuel keeps dropping, having a pronounced effect on Estonia's CPI now and into next year.
"Thus the annual rise in prices in December may drop close to 7 percent and in January in the region of 5 to 5.5 percent," Lauri told the Baltic News Service.
Lauri said that the deceleration of Estonia's inflation rate in November was, although sharp, predictable. Nordea Pank analyst Andi Binsol, however, said that the sudden drop was more dramatic than his bank had expected. He added that during November the eurozone inflation rate dropped at record speeds, falling from 3.2 percent in October to 2.1 percent in November.
"The weakness of the world economy and the rapid decrease in the prices of raw materials has contributed to this both in Estonia and elsewhere in Europe," Binsol said.
Yet analysts agree that the sudden drop in inflation is only the beginning. Nordea predicts this year's inflation rate to sit at 10.5 percent and 2009's to slow to 5 percent; a forecast by and large shared by Estonia's major banks, including the central bank, Eesti Pank, who predict inflation to fall to 4.8 percent.
Binsol also said that the rise of unemployment and continuation of large-scale layoffs in Estonia has shaken consumer confidence, forcing retailers to lower prices in order to meet public demand.
The massive decline in sales at Estonian passenger car dealerships is a noteworthy example. According to statistics from the Estonian car sale and service companies' association, AMTEL, November showed a 53 percent drop in sales year-on-year, a sure sign of depleted consumer confidence.
Speaking to Estonian business daily Aripaev, Ullar Taniberg, CEO of car dealership Viking Motors, said that the buyer is set to benefit from the dwindling sales, as dealerships are forced to discount stock.
"Noone foresaw such a fall in sales, but there is no denying that these are good times for buyers," Taniberg said.
"There are very many discounts on the market. The Estonian market is at present so unpredictable that we cannot even plan our sales campaigns. Decisions and choices must be made on the run," he said.