Labour market supports low inflation

Martin Lindpere, economist, Eesti Pank

According to Statistics Estonia, the cost of consumer basket remained unchanged in August and inflation was 2.9% compared to August 2009.

In the first seven months of 2010, the price increase of food and non-alcoholic beverages in Estonia was one of the sharpest in the European Union, reaching approximately 6%. Although the increase in consumer prices was partly driven by higher export volumes, the retail trade margin also increased. The trade margin of unspecialised stores trading predominantly in food and tobacco products and beverages increased to 20% in the second quarter of 2010, compared with 18% at the end of 2009.

Data for the second quarter suggest that together with the economic recovery, adjustment of wages is coming to an end. Nevertheless, this will not bring along price pressures in the economy as a whole as economic growth has been achieved by means of higher productivity, which has made it possible to contain labour costs. In the aftermath of serious economic downturn, the price pressures are expected to remain low due to spare capacity.

In August, prices of tobacco products increased by 2.4% compared with the previous month. The increase was driven by the unwinding of inventories accumulated at the end of 2009.

The food price increase has been higher than expected in Eesti Pank's spring forecast. An updated inflation assessment for the years to come together with the autumn economic forecast will be published on 29 September.

Further information:
Viljar Rääsk
Public Relations Office
Telephone: +372 668 0745, +372 527 5055
E-mail: viljar.raask [at] eestipank.ee