Swedbank: wages increasing faster than prices in Estonia

Price growth this year exceeds 3%. The prices are impacted by the increase in the price of raw materials and an increase in excise duties. - writes baltic-course.com.

Despite the fast growth in income and the strong sense of security of the consumers, consumption growth has nevertheless decelerated. In the first seven months of this year, the sales of retail trade enterprises increased by 2% compared to the same period of the previous year.

Commenting on figures from Statistics Estonia indicating that prices in August increased 0.4% compared to July and 3.9% compared to August 2016, the Estonian Ministry of Finance said that inflation in the second half of the year will remain fast due to tax measures.

"Inflation in the second half of this year will remain fast due to additional tax measures and an increase in food prices. A slight deceleration of inflation may be expected next year, as the impact of increased fuel prices will disappear. In addition, the growth of food prices should also decelerate, which this year was accelerated due to unfavorable weather conditions,"Kristjan Pungas, analyst at the Estonian Ministry of Finance's fiscal policy department, said.

"While in the first half of this year inflation fluctuated around 3%, then a notable acceleration took place in July-August. For the most part, the new excise rates on low-alcohol beverages which entered into force in July were to blame for that,"Pungas said.

"Sellers stocked up on several months' worth of low excise alcohol, but it was added to retail prices straight after the amendments entered into force. Tax measures raise inflation in the amount of 1%, of which nearly a half is made up of the increase in the excise rates on low-alcohol beverages."

Food prices on the global market are at the highest level they have been in two and a half years. This is why the increase in food prices in Estonia is also broad-based. Price growth of food products in August accelerated to 6.4%, accounting for 1.5% of inflation in August. Consumer prices were also influenced by the increase in electricity caused by the high exchange price of electricity and the increase in rent prices before the new academic year.

The Estonian consumer price index was 0.4% higher in August than in July 2017 and 3.9% higher than in August 2016, the last time the annual inflation was this high was in October 2012.

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