Estonian inflation 3 pct in the first half of the year

Inflation accelerated to around 3% in the first half of the year in Estonia. The contribution of food and non-alcoholic beverages increased substantially in recent months. Food and non-alcoholic beverages amount to a quarter of household expenditure, on average. In June, the prices of food and non-alcoholic beverages jumped by 6.6% as dairy products, fruits and confectionery became more expensive. Higher excise taxes pushed up the prices of alcohol and tobacco.

At the same time, the contribution of energy prices has declined in recent months. In June, motor fuels were 8.5% more expensive than last year. Although the average oil price in euros was 5% cheaper than in June last year, excise taxes on fuels have increased.

The purchasing power of wage earners will grow much less this year than in the past. In 2017, the growth of the average wage in real terms is expected to slow to around 3% (the 2013-2016 average was 6.4% per year), as nominal growth of wages will be somewhat slower and prices will rise (by around 3% in 2017). The real growth of the average net wage rose by only 2.6% in the first quarter of this year. This, in turn, will limit households’ consumption. The annual growth of retail trade volumes decelerated to 1.8% during the first five months of 2017. Economic sentiment among consumers remains very strong, however. The financial situation of households is perceived as the strongest in 20 years, for example.

Source: Swedbank