Martin Lindpere, Eesti Pank, economist

According to Statistics Estonia, the consumer price index increased 0.1% in May 2011 compared to April and went up by 5.4% year-on-year. Preliminary estimates show that inflation in the euro area was 2.7% relative to the same period a year ago.

Compared to the same time a year earlier, food prices continue to be the most rapidly growing consumer basket component. Since commodity price rise in the global market has slowed in recent months, upward pressures on food prices have eased in Estonia as well. The impact of global-market developments on prices in Estonia has been further intensified by the growing profitability of local enterprises. According to Statistics Estonia, the profit of food, beverages and tobacco wholesale trade reached a record high in the first quarter of 2011.

Inflation shows that the Estonian economic situation is improving and labour-market activity is picking up. Core inflation (measure of inflation that excludes food and energy from the consumer basket), which has been gradually increasing since the start of 2010, reached 2%, year-on-year, in May. Growing export income has mostly boosted profits, but has also partly passed through to wages. For example, average wages in the monopolistic energy sector enterprises grew by nearly 19% in the first quarter of the year. Average wages in this sector of the economy have increased considerably more than in the economy as a whole compared to the pre-boom time. In order to ensure balanced economic development, wage growth should be related to productivity growth, not to price rises.

Further information:
Viljar Rääsk
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