SURVEY OF THE ESTONIAN ECONOMY.
SEPTEMBER 1995

Contents


Chronicle

September 1. The Business Law took effect, increasing the minimum capital requirements for companies and providing for the establishment of a public business register.

September 5. The Government set new prices for electricity and oil shale. Electricity became on the average of 13% more expensive from October 1 and the price limit of oil shale increased 10%.

September 12. The Government decided to transfer control of the Estonian Privatization Agency from the Ministry of Finance to the Ministry of the Economic Affairs.

September 15. The price of train tickets was increased, with one kilometre now costing 20 sents outside Tallinn.

September 21. The Government decided to liquidate 12 state boards. Most of them will be turned into ministerial departments.

September 25. Riigikogu (the Parliament) adopted the Law on the Regulation of the Agricultural Produce Market. Among its provisions, the law allows the imposition of import tariffs and formation of the Chamber of Agriculture and Commerce.

September 26. The Compensation Fund began the sale of its fourth and fifth issue bonds: the fourth issue will be sold to the highest bidders; the bonds of the fifth issue, for a fixed price.

The Government adopted a set of instructions for maintaining a population registration database. The database will be kept by the State Computing Centre, county administrations and district municipalities of Tallinn.

The Union of Estonian Private Health Institutions and the Society of Estonian Private Doctors sent a public appeal to the Riigikogu, the Government and the Ministry of Social Affairs demanding equal opportunities of development for private and state-funded health care.

September 27. The Government sent the 1996 state budget to the Riigikogu for discussion.

Economic Policy

In September, much attention was devoted to the budget and income policy.

The Government drafted this year's second supplementary budget. The revenue (50 million kroons) derives from the surplus that accumulated at the beginning of the year. Of this, 20 million kroons will be spent on grain purchases and 30 million kroons will be included in the Government's reserve fund.

The Government also completed the draft state budget for 1996. The revenue is planned at 10,163 million kroons, which is 14% larger than the expected revenue in 1995. Under the draft, prices are expected to increase 20% in 1996 and economic growth is predicted at 3.5%-4%. The revenue from VAT and personal income tax is expected to increase 21%, but due to the redivision of income from personal income tax between the state budget and local budgets, the state budget's share will be smaller than in 1995.

The expected revenue from excise taxes is planned to be approximately two times bigger than in 1995, due to increased tax levels. In September the Government decided in favour of increasing the excise tax on fuel by an average of three times; excise tax on alcohol will also be increased. The planned increasing of the tax-free income of private individuals from 300 kroons a month to 500 kroons will somewhat lower personal income tax.

The share of indirect taxes in state revenue will increase from 57.6 to 70%, making the revenue greatly dependent on changes in the structure of trade turnover.

Local budgets will be influenced by changes in the division of revenue. Instead of the current 52% of personal income tax, local governments will receive 66% in 1996. The functions of state and local budgets will also be revised. With the increased share of revenue from personal income tax, the local governments will have to start paying housing and subsistence benefits to the population. Because of these changes, the Government has also drafted amendments to the Law on Social Welfare.

In addition, local governments will receive 804 million kroons in subsidies (the planned subsidies in 1995 are 760 million kroons), of which 100 million kroons is meant for investments.

There are few changes in the next year's planned expenditures as compared to the budget of 1995, both as to the spheres of activity (allocations to respective ministries and departments) as well as economic purpose (wages, investments), although the Government's priorities (Ministry of Justice, Ministry of Internal Affairs) are clearly distinguishable.

The state budget is supplemented by the budgets of the pension fund (4.1 billion kroons), the health insurance fund (2.67 billion kroons) and the environmental fund (56 million kroons). Due to the increase of wages, the collection of the social tax for the health insurance fund has been larger than expected. The Government approved the 1995 supplementary budget of the Central Health Insurance Fund drawn up by the Ministry of Finance, and decided to submit it to the Riigikogu. The Central Health Insurance Fund has run into financial difficulties because, under the Health Insurance Law, it can only use the sums allocated to it in the health insurance budget; the utilisation of surplus income requires a special ruling of the Riigikogu.

The issues of income policy surfaced in connection with the discussion of the next year's budget. Representatives of the Association of Estonian Trade Unions and the Association of Estonian Industries and Employers discussed the introduction of a new minimum wage. The trade unions want the minimum wage to be increased to 900 kroons a month while the employer unions only agree to 650 kroons. The decision has been postponed.

The Government decided to increase the salary of teachers by an average of 30% from October 1. The Organisation of the Employee Unions (TALO) has announced that it will demand a 40-50% increase in the salaries of employees of state-funded institutions next year. The 1996 draft budget envisages spending approximately 14% more on salaries than in 1995. However, all categories of expenditure will increase by this much. In order to more increase salaries, the number of employees in state institutions has to be reduced.

September 1 marked the increase of old-age, disability and survivor's pensions. The rise was the most remarkable in the category of old-age pensions since the share based on the length of service was increased. Since the basic rate remained 410 kroons, the categories of pensions derived from the basic rate also remained unchanged. The Government also discussed the draft amendments to the Law on Child Benefits. One suggestion under consideration was making child benefits dependent on the size of the parents' income.

The influx of foreign capital to Estonian commercial banks continued in September, through increasing the share capital and access to credit lines from foreign banks. A novel feature was that the Nordic Investment Bank sold 200 million kroons worth of bonds in Estonia (at 12% interest rate, redemption in September 1997). The money was meant for investments of the Finnish and Swedish telecommunications organisations.

A study of the situation of the Estonian railways is planned to be carried out with financing from the PHARE programme. The European Investment Bank (EIB) is in principle ready to invest in the reconstruction of the Estonian railways once the study is completed. The World Bank, too, has promised to analyse the Estonian transport system.

Compared to its immediate neighbours, Estonia has the most open market. In 1995 Russia tightened its customs barriers with Estonia. The Estonian Chamber of Commerce and Industry arranged a visit of a high-level delegation of Estonian businessmen to Moscow, to further trade relations between Estonia and Russia. Latvia, too, is protecting its markets against Estonian food products, although all participants in the September meeting of Baltic ministers of agriculture in Riga favoured the introduction of free trade. The Estonian-Ukrainian free trade agreement, too, waits for ratification by the parliaments of both countries.

Economic Growth

The economic growth index is an integrated indicator of changes in the gross domestic product (GDP). It includes the growth indices based on income and consumption being comprised of sub-indices of a constant structure that have been adjusted with the three-month sliding average. Such an adjustment eliminates accidental deviations as well as deviations caused by the proximity of the modelling, and brings out the basic trends that are most reliably reflected in the quarterly growth index.

The economic growth index increased 2.5% in September as compared to August (see Table 1). After the decline in July the index has been increasing for the second consecutive month. The average third quarter economic growth was 2.5% against the second quarter growth, and 2.6% against the respective figure of the third quarter of 1994. In 1994, economic growth was particularly rapid in the second quarter, to be followed by a decline in the third quarter. This year, economic development has been stable, although the nine-month average growth index was only 1.2% bigger than the 1994 nine-month average growth (see Figure 1).

The index of economic growth increased in September mostly due to the big positive change in the consumption-based growth index. The income-based index decreased in September (see Table 2).

The changes in the consumption-based growth index were mostly due to developments in the foreign sector, investments and inventory. In September, the negative trade balance of goods decreased while the positive balance of services increased; both these factors contributed to the improvement of the index of the foreign sector.

In the income-based growth index the dominating factor was the post-holidays low wage level.

The factors influencing the entire third-quarter economic growth index were similar to those affecting the September index (see Table 3).

Inflation

In the post-monetary reform years the majority of inflation indicators have decreased as compared to the previous year (see Table 4).

Consumer Price Index

Consumer prices increased 2.1% in September as compared to August. The September price increase was higher than the last 12-month average as well as the last three-month average (see Table 5 and Figure 2). The role of seasonal factors was insignificant in September (see Figure 3). Estonia's price increase was higher in September than that of Latvia (1.8%) and Lithuania (2%).

In the third quarter, consumer prices increased 5.3% against the prices of the second quarter. This is below the respective figure of the second quarter (6.2%) and that of the third quarter of 1994 (5.5%), and equal to the average price increase of the previous four quarters. At that, prices in the open sector of the economy increased 1.1% in the third quarter, and prices in the sheltered sector increased 11.4% (see Figure 4).

The analysis of the consumer price indices of the open and the sheltered sectors indicates an increase in both sectors - 1.8% and 2.6%, respectively (see Table 5). The increase concerned prices regulated administratively (train fares, communication services, etc.) as well as other prices in the sheltered sector (other services, etc.). The price increase this September was slower than the increase in September 1994 (see Figure 5).

Considering the share of the open and the sheltered sector in the consumer basket of private individuals, 63.5% of the CPI increase in September was due to the price increase in the open sector (see Table 6).

Factor Analysis of Price Increase

The weakening of the German mark earlier this year was the most influential cause of the price increase in the open sector in September: it led to the increased inflational pressure from prices abroad (in industrial countries; see Table 7). The increase in the real exchange rate of the Russian ruble over the past five months has also influenced prices in Estonia towards the increase.

Deviational money supply and the factor describing fiscal policy slowed down the price increase in the open sector to a certain extent.

Prices abroad, too, had a greater share in affecting price increase in the sheltered sector. Among unidentified factors the most important was the impact of the increased train fares and communication services.

Component Analysis of Price Increase

Among the categories of goods and services price increases were the highest for leisure, other goods and services, and food (see Table 8).

The increased prices of food, leisure and housing, as well as transport and communication accounted for 81.4% of the total CPI increase in September (see Table 9).

Among the groups of goods and services one-fifth of the CPI increase resulted from the higher cost of leisure and education (see Table 10). In September, the price of theatre tickets increased 44.4%, paid courses cost 15.9% more, and cinema tickets, 14.4% more. The 13.7% increase in the price of flowers was seasonal. The repair fees for TV-sets and radio receivers increased 21.4%.

The increase of prices in such groups of goods as fats, eggs, milk and dairy products accounted for 12.6, 7.5 and 6.9% increase, respectively, in the September CPI. This was mostly due to the increase in the real rate of the Russian ruble against the Estonian kroon, which, through Russian prices expressed in the Estonian kroons had an inflational impact on prices in Estonia. The same groups of goods have been sensitive to Russian influences before.

The increase of rent, the price of water and sewage services did not mark the beginning of a new stage in the administrative price increase but rather, the continuation of the earlier price increase outside the capital area.

Prices decreased the most for fruit and vegetables in September. The decrease mostly concerned the price of potatoes and fresh fruit (14.3 and 1.8%, respectively). However, this impact was reduced by the 35.8% increase in the prices of the so-called B- group vegetables (tomatoes, cucumbers, etc.).

Producer Price Index

In September, producer prices increased 1.4% as compared to August (see Table 11).

As the administratively regulated prices in energy and mining industry (electricity and oil shale) have not been increased since the turn of the year, the increase in producer prices since February has largely been caused by the increase in the prices of the products of the processing industry (see Table 12). A comparison of the chain indices of producer prices indicates that since December 1992 the increase of prices in the energy and mining industry has been higher than the increases in the processing industry (see Figure 6).

In the third quarter producer prices of the industrial production increased 1% against the corresponding figure of the second quarter; the prices of the processing industry products increased 1.2% and the prices of energy and mining industry products, 0.2% (see Figure 7).

Export Price Index

The export prices increased 1.3% in September as compared to August (see Table 13and Figure 8). The growth of export prices against the respective month of the previous year indicates a continuing downward slope; the same was characteristic of September.

In the third quarter export prices increased 1.1% against the second quarter. The figure equals the respective index of the second quarter and is below the index of the third quarter of 1994 and the previous four-quarter average (see Figure 9).

Building Price Index

Building prices increased 5.2% in the third quarter as compared to the second quarter. This is less than the increase in the second quarter, the third quarter of 1994 and the previous four-quarter average (see Figure 10).

Real Effective Exchange Rate Index of the Kroon

In September, the real rate of the kroon increased 0.3% as compared to the level of August (see Table 14and Figure 11). This was caused by the price increase in Estonia that was higher than the increase of prices abroad expressed in Estonian kroons.

The impact of various components to the real rate of the kroon is given in Table 15.

The internal real exchange rate index, expressed as a ratio of the price indices of the economy's sheltered and open sectors, increased in September too. For a longer time series data the changes in the internal real exchange rate index are analogous with changes in the real effective exchange rate index of the kroon (see Figure 12).

Fiscal System

Throughout 1995, the collection of the state revenue has been close to the planned target. In nine months, 72% of the planned annual revenue was collected (the ideal result would have been 73-74%). Over the same period, 70% of the annual expenditures were made. The respective figures in the nine months of 1994 were 72 and 65%. Although the indicators of the last two years are close in their size, the actual situation in these years has been very different. Namely, the figures for 1994 are based on a plan which included supplementary budgets based on surplus revenue and, therefore, the actual expenditures was 19.2% higher than planned at the beginning of the year.

Over the nine-month period, revenue of the local budgets amounted to 75% of the planned annual target, or in other words, the collection of personal income tax has been more efficient than collection of the state revenue as a whole. Since local budgets also need support from the state budget, the sum total of revenue and expenditure relations between the state budget and local budgets is, however, more tense than in earlier years. While the first half of 1994 was characterised by a considerable surplus of current revenue, then this year the surplus has been small. In nine months, the surplus of current revenue of the state budget and local budgets taken together was 1.5% (see Table 16and Figure 13).

Depending on what we compare it to, the collection of the revenue in September can be seen as either better or poorer than the average. Compared to 1994, the unusual aspect was that in this September revenue dropped nearly 30% from the level of August (see Figure 14). In earlier years September has marked the beginning of larger revenue being collected after the low point of the summer months. The big decline this year did not result from the reduction of revenue from major taxes. Only revenue from excise taxes and corporate income tax decreased. This kind of fluctuation due to the tax collection procedures is quite normal though. Revenue from VAT and personal income tax even increased in September, although the increase was somewhat smaller than could have been expected from the experience of earlier years. The decline in state revenue was actually caused by the drop in the collection of various service fees, due to the revision of sums collected earlier. However, this must be regarded as an accidental deviation, not an indication of changes in the revenue collection system as a whole.

Revenue of local budgets decreased approximately 7% in September, repeating the fluctuations of 1994 (see Figure 15).

When comparing revenues collected in September this and last year, the changes are as could have been expected. An exception here is the personal income tax, revenue from which increased only 1.23 times, while the nine-month revenue from personal income tax increased 1.48 times (see Table 17). Since debts from personal income tax did not increase considerably, the only explanation is that the companies delayed transferring the tax sums (it must be done by the fifth of the next month). This is borne out by the fact that the personal income tax paid to local budgets was 1.4 times higher this September than it had been at the same time last year.

In the second half of 1995, state revenue should increase at a more rapid rate than in the first half-year because last year revenue in the second half of the year was only slightly bigger than in the first half. Because of this, the rate of increase of state revenue looked deceivingly low as compared to the previous year, while the nine-month result indicates something else. Namely, the 1.3 times increase is too big to be taken as the annual average rate. The 1995 revenue is likely to be approximately 1.25-1.26 times bigger than that of 1994.

The taxes affecting the state revenue formation can be divided into two. The collection of excise taxes showed better results than expected, with 90% of the planned amount collected over the first nine months. This does not result from the increase of turnover but from the increased tax levels and the introduction of a new excise tax (on motor vehicles). These increases had not been considered when drawing up this year's state budget.

Revenue from personal income tax and corporate income tax has been more or less up to the planned target. Revenue from VAT has been 3-4% below the mark. Revenue from corporate income tax, too, can turn out smaller than expected but its impact on the total revenue is small (12% of the nine-month total revenue) in comparison with revenue from VAT. Since the average wage has increased more rapidly than expected, total annual revenue from the personal income tax could even be larger than originally planned. The increase of wages has also resulted in the constant increase of revenue of local budgets, through personal income tax.

The changes in the expenditures of both the state budget and local budgets over the past few months have been similar to the pattern of 1994 (see Figure 16and Figure 17).

The structure of expenditures across the spheres of activity has remained unchanged in the last years, mostly due to limited revenue sources. The expenditure priorities have been focused on the social sphere, as is natural for a small country like Estonia. The share of social expenditure has increased to nearly 50% in both the state budget and local budgets, and changes in these expenditures determine the changes in other categories of expenditures throughout the year (see Table 18). Minor fluctuations can occur in some separate month only.

Foreign Loans

By October 1, the total sum of Estonia's foreign loans amounted to USD 447.7 million, of which USD 329.3 million or 73.6% was the parliament-ratified loan agreements and USD 118.4 million, or 26.4%, the government-guaranteed loans, according to the Ministry of Finance (see Table 19). The figures are based on Eesti Pank's exchange rates of September 29.

By the spheres of economy, priority was given to loans taken for the restructuring of the energy sector and improving communications and roads (28 and 19% of the total sum of loans, respectively; see Table 20).

In the third quarter, a USD 3.15 million loan from Exportfinance guaranteed by the Government of Norway was added to the list of state-guaranteed loans. The term of repayment is seven years and the loan will be used for building communication networks. The total sum of loans decreased in the third quarter as on July 11 the Government gave up a 100 million kroon part of the energy sector loan provided by the European Bank for Reconstruction and Development (EBRD). Also, the disbursement of a loan from the Japanese Export-Import Bank (JEXIM) was ended and the final sum of the loan was determined.

In the third quarter, USD 16.7 million was disbursed in loans. No repayments were made (see Table 21and Figure 18). In the nine months of this year nearly two times more loans have been disbursed than over the same period last year (without the IMF financing). This indicates a better utilisation of loans than in 1994. This year, for example, USD 8.5 million of the World Bank loan granted for the modernisation of district heating systems has been disbursed, as well as USD 6.1 million of the EBRD loan for the modernisation of the Tallinn Airport. Thus, investments important for the future of the Estonian State have been financed from foreign loans.

The ratio of loan servicing costs to export is near zero since the bulk of the cost is made up of interest payments. Only two loans are being repaid currently. The servicing costs are expected to increase considerably from 1996 onwards and peak in the year 2000 (see Figure 19).

Estonia's major creditors have been international banks. Compared to the third quarter of 1994, the share of international finance institutions involved in crediting long-term projects has increased (see Table 22).

Unemployment

According to the Labour Market Board the decrease in the number of the unemployed, characteristic of the autumn months, continued in September. The number of officially registered unemployed was 13,232 on October 1, which is 1.3% less than on September 1 (see Table 23). Of them, 92% or 12,113 people received unemployment benefits in September (12,821 in August).

The decrease in the unemployment figures this summer and autumn was mostly seasonal in character. The seasonally adjusted time series data of unemployment in 1995 indicate an upward trend (see Figure 20).

In September, 3.6% of the working-age population turned to the employment offices to seek a job. The unemployment rate, based on the ratio of all job-seekers to the total number of gainfully employed plus job-seekers, as recommended by the methodology of the International Labour Organisation, was 4.6% in September, which is slightly lower than in September 1994.

The September decrease in the number of job-seekers against August was due to the decline in the number of officially registered unemployed (which accounted for 8% of the change) as well as the decreased number of other job-seekers (which accounted for 92% of the decline).

The number of unemployed job-seekers (in correlation to the working-age population) was still the biggest in the Võru county. According to the share of officially registered unemployed, the unemployment was relatively high also in Narva, Põlva county and Viljandi county (see Table 24). Unemployment level was low in the Pärnu county, Tallinn, Tartu county, Lääne-Viru county and Harju county.

The number of available jobs was the largest (more than one job per 10 applicants) in the Pärnu county, Tallinn, Harju county and Lääne-Viru county. The percentage of job-seekers found a job was the largest in the Pärnu county. In regions with a high unemployment level only 2-3% of the job-seekers who contacted the employment offices managed to find a job in September.

Wages and Salaries

According to the Ministry of Social Affairs, the average gross wage in September was 2,360 kroons (2,207 kroons in August, 2,470 kroons in July). The third quarter average gross wage was 2,346 kroons, according to preliminary calculations.

Similarly to last year, September marked the beginning of the rise in wages (see Figure 21). The average nominal wage increased 6.9% in September, while real wage increased 4.7% (see Table 25). In September 1994 consumer prices increased more than this September, hence the higher increase in real wages (see Figure 22). Including September 1995, the average increase in the real wage over the past 12 months was 10.5% (taken as an average monthly increase of the real wage against the respective month of the previous year) and the average increase over the past nine months was 8.8%.

According to the EMOR study of family budgets, the average wage in September was 2,277 kroons per wage-earner, or nearly the same as in August (see Figure 23). The average monthly wage in the third quarter was 2,378 kroons, which is 1.4% higher than the figure provided by the Ministry of Social Affairs, but 5.5% lower than the provisional data of the State Statistical Office (SSO; 2,410 kroons). However, the data submitted to the family income study may contain certain unofficial payments.

According to the SSO data, based on financial reports of companies, the average wage was 2,395 kroons in the second quarter. The wage increase has been relatively high in fishery, agriculture, the energy sector, gas and water supply and forestry this year (see Table 26). As to the size of the average wage in the second quarter, the leading sectors were finance, energy, gas and water supply, transport, inventory management and communication. The average monthly wage was below 2,000 kroons in various services and agriculture.

Estonia's average monthly wage has been higher than the wage level in Latvia and Lithuania this year (see Figure 24). In Latvia, the average nominal wage of state employees dropped 2.6% (in state-financed institutions the drop was 5.7%), and the real wage decreased 4.6% in September (the CPI increased 1.8%). Over the last 12 months the average monthly wage of state employees has increased 22% while consumer prices are up 24% (in Estonia the average wage has increased 36.4% and the CPI, 25.9%). In Lithuania, too, the average wage decreased in September: the nominal wage fell 1.6% (1.9% in the state sector and 0.7% in the private sector), and the real wage, 3.3% (the CPI increase was 2%).

Family Income

According to the EMOR study, the increase of the population's income that had begun in August continued in September (see Figure 25). The increase of income usually peaks in the last month of a quarter, and September was no exception in this respect: the net income amounted to 1,265 kroons per family member (see Table 27). Considering the trend of net income over the last years as well as seasonal factors, the average net income in September could have been 1,308-1,313 kroons per family member (see Figure 26).

The gross income per family member in September was on an average 104 kroons larger than it had been in August. Since the consumer prices increased 2.1% in September, the real income increased 5.3% against August. In the first nine months of this year the real income has increased 6.5% against the nine-month period of the last year.

The bulk of the net income increase in September (64%) resulted from the increase of wages; 9.1% of the increase derived from income from production activity; 38.5% from social insurance payments and compensations. Income from investments had a negative effect on the increase of total income in September (see Figure 27).

From September 1, the share of pension paid on the basis of the length of one's service was increased, leading to a 1.4 percentage point increase in the share of income from social insurance in the overall structure of family income (see Table 28).

Private Consumption and Saving

According to EMOR, an average of 1,109 kroons per family member was spent on consumption in September, which is 87.7% of the money earned (see Table 29). The remaining 156 kroons or 12.3% of September income was put aside as savings.

According to EMOR, the nominal consumption increased 6.2% in September and real consumption, 4.1%, against August. In the first nine months of 1995, real consumption was up 1.7% from the level of the respective period last year.

The total sum of consumption was most affected by the increased expenditures on housing (this accounted for 87.1% of the increase in the total consumption), and on other goods (75.7%). Of the latter, a big share was made up of durable goods - furniture and household appliances. The increase of consumption expenditures was slowed down by the decrease of spending on transport and alcohol (see Figure 28). The various components of consumption interacted in such a way that the total impact of seasonal factors allowed expenditure on consumption to increase very little.

The consumption pattern of families in September underwent a change from the structure of summer expenditures to autumn and winter expenditures. Thus, spending on housing and eating out increased by more than one-third. Compared to August, expenditure on education and health care increased 2.2 times, and on buying durable goods, 1.8 times.

The share of expenditure on food was the biggest in pension-age families (52.3%). At the same time, food played a much smaller role in economically active families, accounting for 30.8% of total expenditures in families with one earner; 27.1% in families with two earners, and 22.6% in families with three or more earners.

On an average, 391 kroons per family member was spent on food in September, which is close to the amount spent on food in August (389 kroons), but considerably less than in July (415 kroons). Expenditures on sugar, fruit and vegetables, which are cheaper in autumn, went down in September. Approximately one-third less than in the summer months was spent on alcohol in September.

In the structure of consumption the share of expenditure on housing increased 4.3 percentage points in September (see Table 30). Both payments for communal services as well as expenditures on household interior increased in September. At the same time considerably less was spent on building materials, which indicates that the period of summer repairs and redecoration had ended.

The considerable change in the share of transport costs in the structure of family expenditures is most frequently linked to car purchases. In August, the transport costs increased 2 percentage points, to be followed by a four percentage point decline in September. Considerably more was spent on public transport, petrol and oils in the summer months than in September.

The expenditure on clothes was considerably larger in September, which was due to the prices of these goods going up and the beginning of the school year. In September also more durable goods were bought by families than in the previous months.

Economic Inequality

The differentiation of the population's income has decreased rather than increased this year (see Table 31). In most months, the Gini coefficient has been slightly smaller than in the respective months last year, and a downward shift is also evident in the Lorenz curve (see Figure 29and Figure 30).

The share of families whose income per family member was below the official minimum wage was 14.4% in September, that is, smaller than in August (14.6%) and July (15.8%). The ratio of the average income of families in the lowest and the highest income decile changed little in September, but the change was towards reduction.

The spending on vital necessities (fixed spending) remained more or less on the level of August (358 kroons per family member in September; 355 kroons in August). This can be attributed to the cheapening of the prices of potatoes and other vegetables in the autumn, although the CPI was up 2.1% in September.

Twenty per cent of families (25% in August) spent less on food than the statistical minimum food basket (301 kroons per family member in September).

Inflation had a somewhat smaller effect on wealthy families than it had on low-income families (see Table 32). This was due to the increase of the prices of several food products since the share of food in the consumption of low-income families is 2.1 times larger than in that of wealthy families.

Urmas Sepp
Andres Kerge
Tiiu Luks
Sünne Püss
Andres Saarniit
Natalja Viilmann