Statistics Estonia emphasized that this is a preliminary estimate and will be refined as additional data on June prices become available.

The consumer price index (CPI) is weighted based on the consumption patterns of Estonia's residents within the country, while the harmonized index also includes spending by tourists and is comparable with the international Harmonized Index of Consumer Prices (HICP).

"According to the preliminary data, the index was affected most by lower prices for food and non-alcoholic beverages, as well as clothing and footwear, both compared with the previous month and with a year earlier," said Lauri Veski, head of consumer price statistics at Statistics Estonia.

Consumer prices rose 3.7 percent year on year in May.

Statistics Estonia will publish the June consumer price index on Tuesday, July 7. The June harmonized index of consumer prices will be released on July 16.

Luminor Chief Economist Lenno Uusküla said June's decline in prices was driven primarily by lower global oil prices, which also led to lower gasoline and diesel prices at Estonian gas stations.

"Oil, which traded at $70 per barrel before the active phase of the crisis began in March and briefly climbed to $110 per barrel, fell back to around $72 by the end of last month. It has not yet returned to the earlier level of around $60 per barrel. In June last year, however, oil prices averaged above $70 per barrel, essentially the same level they had fallen back to by the end of June this year."

According to Uusküla, administratively driven price increases have run their course and tax changes are no longer accelerating inflation. Food prices, which had previously been a major driver of price growth, are also trending downward.

"We have not seen annual inflation this low since April 2021, more than five years ago. Prices fell during the coronavirus pandemic, but before that annual inflation also averaged around 3 percent."

Uusküla said the outlook points to only a moderate increase in inflation over the rest of the year.

"If the peace agreement between the United States, Israel and Iran is signed and holds, oil prices could remain low. We may experience some price pressure from commodity prices that rose in the meantime, but it should remain moderate. Going forward, price developments are more likely to depend on how increasingly volatile weather caused by climate change affects agriculture, as well as on how much natural gas can be stored ahead of next winter and how cold that winter turns out to be."

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