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Monday, March 31, 2008

Estonia Retail Sales February 2008

Well today we have what on the face of it is some mildly positive news from Estonia, although, as I will explain, there are reasons for exercising caution at this point. Basically Estonian year on year retail sales growth accelerated slightly in February following a slight annual contraction (according to revised data) in January. Retail sales increased an annual 4 percent after being virtually stationary in January when compared with January 2007, the Tallinn-based statistics office said today.

In February, retail sales were running at a level of 4.2 billion kroons, which is a half billion kroons more than at the same time a year ago. If we come to look at the volume index for retail sales (which is not seasonally corrected) we will see that the picture is far from clear.

We can certainly say that for one month the rot seems to have been stopped, but since January and February are far from being typical months in retail sales terms we would do well to wait a few more months yet before jumping to too many conclusions.

One factor which may well be worth taking into account when looking at these retail sales numbers is the fact that real wages in Estonia (at least up to December, which is the last month for which we have data) have been continuing to rise at a hefty clip. In December gross wages were still increasing at an annual rate of 18.05%, which, if you subtract the annual cahnge in the CPI for December of 9.6% still leaves a real wage increase of 8.45%. As inflation comes under control these kind of wage increases will obviously not be happening, and this will be noticed at the level of retail sales. So we should expect further, and more substantial corrections to sales to take place as wages are brought back gradually under control. In fact the length of time it takes to achieve this end will be one measure of the severity of the "stagflation" which we might expect to see in Estonia for some considerable time to come.

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