Analytics, Estonia, Inflation

International Internet Magazine. Baltic States news & analytics Sunday, 19.05.2019, 15:45

Presidential adviser: Estonian residents' consumption power grew despite inflation

BC, Tallinn, 09.01.2019.Print version
High inflation reaching 3.4% in Estonia in 2018 did not reduce people's capacity to consume, as higher incomes allowed consumption power to grow, the president's economic affairs adviser Heido Vitsur said.

"Prices increased 3.4% in our country last year, which is quite precisely what was predicted for the full-year. Even though our prices grew at a rate double the European average, nothing terrible happened: our people's incomes also grew significantly faster, so that the people's capacity to consume did not decline last year, but increased," Vitsur told LETA/BNS.

He said that leaving aside the 8.6% increase in the prices of alcoholic beverages and tobacco brought on by excise duty increases, as well as price rises related to more expensive energy, the increase in prices in the rest of the categories of goods, with the exception of communication, where prices moved lower, was quite even. 

"In macro-economic terms, this means that our economy's convergence with the wealthy Nordic region continued at a rapid speed thanks to sufficient growth of the economy and rapid increase in incomes, and that our employers are able to cope also in the present labor market conditions," Vitsur said, adding that the Estonian economy is shifting increasingly from cheap work to greater value-added production.

Vitsur said the Estonian economy has no other choice under the conditions of free movement of labor. For the consumer the convergence means increasingly better availability of imported goods and better travel possibilities.

Since no significant change on the labor market compared with previous years can be seen ahead in 2019, there is no reason to forecast a significant reduction in the speed of wage growth. Therefore the upward pressure on prices arising from wage growth will continue this year.

"Hopefully on a smaller scale, however. But since in addition to that also the impact from an excise hike will be foregone this year, the [rise in] the consumer price index this year is likely to be somewhat smaller, however," the economic adviser to the president said, adding that this is provided that nothing totally unexpected will happen on the global fuel market.

Inflation in Estonia was 3.4% on year both in December and full-year 2018, Statistics Estonia announced on Tuesday. Monthly inflation in December was -0.3%.

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