Inflation in Estonia this year is due to energy prices and rises in excise

  • Inflation passed 3% in April
  • Prices for commodities have shown signs of rising more slowly on world markets in recent months

Consumer price growth accelerated to 3.2% in April in the data from Statistics Estonia. Energy prices rose 6.8% over the year, food products including alcohol and tobacco were up 4.8%, and core inflation1 reached 1.4%.

Prices for commodities have shown some signs of rising more slowly on world markets in recent months. The price of a barrel of crude oil remained close to 53 dollars in March and April, but it started to fall at the end of April. This was because of increased oil production in the USA and weak demand in Asian countries. The oil producing countries of OPEC are considering a cut in their output of oil, and will probably not let prices fall very low. Data from the Food and Agriculture Organization (FAO) of the United Nations showed lower prices for food commodities on world markets for the second month in a row. Prices fell by quite a long way in March and April, down 4.3% in total. Current food prices will have a notable effect on inflation numbers next year, as consumer prices reflect changes with a time lag.

Inflation in Estonia this year is mainly being affected by energy prices and rises in excise. In July, alcohol excise will rise again, with excise on beer rising by 70%. Rises in excise will add around 0.2-0.3 percentage point to inflation. Core inflation, which is the rise in prices of services and manufactured goods, will continue to rise gradually in the second half of the year. Core inflation is affected by both import prices and faster economic growth.

The December economic forecast last year expected inflation to rise to close to 3% in 2017, and so far it has been in line with that forecast. Eesti Pank will publish a new inflation forecast in June.

1 Core inflation covers manufactured goods and services and excludes the volatile prices of energy and food, and it covers 57% of the consumer basket.

Source: Bank of Estonia

Author: Sulev Pert, Economist at Eesti Pank


More Russian tourists visit Estonia

There were more than one million visits to Estonia by foreign residents in the first quarter of 2017, which was 6% more than in the same quarter of 2016. The biggest increase was in the number of tourists from Russia, who made 22,000 more visits to Estonia than a year before. The number of visitors from Russia who stayed overnight was up 14%. They accounted for one fifth of the total number of overnight visits, which is the largest share for three years.

The number of European Union residents visiting Estonia was up by 5%. There were slightly more visitors from Finland than a year earlier and they accounted for 40% of the total. Visitor numbers from each of the United Kingdom, France, Latvia and China were up by more than one tenth, while there were 10% fewer visitors from each of Norway, South Korea and Belarus.

A little over half, or more precisely 54%, of visitors to Estonia stayed overnight, and their stay on average was the same length as a year earlier at 4.2 days. It is estimated that overnight visitors spent a total of 150 million euros in Estonia, and same-day visitors spent 50 million euros. Both of these figures were up 5%.

In the first quarter of 2017, residents of Estonia made some 840,000 visits to foreign countries, which was 4% more than a year earlier1. There were 5% more overnight visits, and their average length was 3.7 days. Same-day trips accounted for 14% of the total, and they did not change in number over the year.

As usual, residents of Estonia visited Finland the most, making 160,000 visits there, a number that has not changed over the year.

One visit in five was made outside the European Union. Having fallen for several years, the number of visits by Estonian residents to Egypt rose by one third. The number of trips to Thailand, another popular holiday destination, was up 14%. More visits were made than last year to Ukraine, Bulgaria and Spain, but there were 7% fewer trips to Norway and 12% fewer to Russia.

Visitors from Estonia to foreign countries spent an estimated total of 155 million euros.

1 The number of trips abroad and the number of visits abroad are not the same, as one trip abroad may include visits to several different countries.

Source: Bank of Estonia

Estonia’s activity in foreign markets increased in March

The flash estimate1 put the Estonian current account at 37 million euros in deficit in March 2017. All the components of the current account were up on the previous March, especially exports and imports of goods and services. The surplus on the goods and services account was 5 million euros, which was 10 million euros less than a year earlier. The growth in the trade of goods was notable, as goods exports increased by 10% and imports by 12%, meaning the deficit on the goods account widened by 15 million euros to 90 million euros. The surplus on the services account was 96 million euros, which was 10 million euros more than a year earlier. Exports of services increased by 12% and imports by 13%. The net outflow on the primary and secondary income accounts was at the same level as a year before and totalled 42 million euros.

The current and capital accounts were in deficit by a total of 20 million euros in March, meaning Estonia was a net borrower from the rest of the world.

Read more from Bank of Estonia website

Labour force participation rate 70 pct in 1stQ

Labour market performed better than expected in the first quarter. The labour force participation rate, i.e., the proportion of persons of working-age who are either employed or unemployed, reached a record level of 70.2%, considering seasonal factors. Employment substantially increased and the unemployment rate decreased further.

The number of employed increased by 2.7%, over the year, mostly in trade, and in Tallinn, as several new shopping centres were opened. Increased economic activity lifts employment this year. Manufacturing and service companies expect higher sales and plan to increase the number of employees during next three months.

The unemployment rate decreased to 5.6% in the first quarter (6.5% in the first quarter of 2016). The registered unemployment rate of 5.0% was at the same level as one year ago. Strong demand for labour supressed the number of unemployed, even when the work ability reform moved large groups of people from inactivity into the unemployed. Nevertheless, in April, the number of registered unemployed grew again, so there is no clear trend.

The number of inactive decreased by 5.7% as less people were away from the labour market due to studies, bad health or raising children. The participation rate is on the rise due to a tight labour market, the work ability reform motivating people with disabilities to look for a job, and, a smaller number of people aged 15-24.

First quarter data shows that the labour market remained tight. The amount of labour available in the market has decreased, while the rate of job vacancies has jumped. The rate of job vacancies, i.e. the share of job vacancies in the total number of jobs, was 1.7% in the fourth quarter of 2016. A shrinking working-age population reduces the amount of existing work force as well. The number of people aged 15-74 decreased by 6,000 only in 2016. Therefore, wage pressures are expected to persist.


Source: Swedbank

Estonia is among largest net beneficiaries from FDI in the EU

Can FDI boost enterprises’ investments into fixed assets? 

Although there is no one-to-one link between FDI and investments into fixed assets, long-term comparison shows that there is evidence of correlation between these indicators, especially in manufacturing sector where the need for fixed assets is greater. Inflow of FDI has been gaining speed for the past two years and industrial confidence is improving. This suggests that we could start to see more investments into fixed assets soon.

Structure of Estonian FDI by sectors 

Financial and insurance activities, that used to make up 50% of FDI back in 2005, are giving way to other sectors. The importance of manufacturing sector as receiver of FDI is also decreasing because of structural changes in the economy. Currently real estate activities make up more than 18% of FDI, more than during the previous real estate boom in 2007. Although the growth of FDI in professional, scientific and technical activities has recently been lagging it is important for the future.

FDI diversification by country has increased 

Sweden has been a major contributor to our FDI from the beginning of independence, and it still is today, although the importance of Sweden is continuously decreasing. After the start of the conflict in Ukraine the FDI market share of Russia is also decreasing whereas other smaller countries, such as neighboring Latvia and Lithuania, invest more in Estonian companies year by year. Nevertheless more than 80% of inward FDI in Estonia originates from the EU.

Source: Swedbank