Estonia Producer Prices and Unemployment April 2008

The prices of goods leaving Estonian factories and mines rose at an annual 7.2 percent rate in April, which was the slowest rate in 13 months. Producer-price growth, which is an early indicator of future movements in consumer inflation, slowed from an 8 percent rate in March, according to data released by the Estonian statistics office earlier today. Prices rose a monthly 0.8 percent, which was up when compared with a 0.1 percent rise registered in March.



Looking at the above chart the downward trend is now clear. Declining domestic demand is undoubtedly forcing companies to tighten up on cost inflation and this is surely slowing down the rate of wage-cost growth from the more than 20 percent registered last year. The Estonian economy, which was the European Union's second fastest-growing in 2006, slowed to an annual rate of 0.4 percent in the first quarter, the EU's slowest, according to preliminary data, compared with 4.8 percent in the fourth quarter, as consumption shrank and the housing boom cooled.


In April 2008 the percentage change in the export price index was 0.4% compared to March 2008 and 5.2% compared to April 2007, while the percentage change in the import price index was 0.7% compared to March 2008 and 5.5% compared to April 2007.




In separate data - confirming the decline in domestic demand - the Estonian Statistics office reported that in the 1st quarter of 2008 8,900 purchase-sale transactions in real estate had a total value of 9.4 billion kroons and that the number and total value of transactions decreased compared to the previous quarter, as well as to the corresponding quarter of the previous year.

The recession that started on the real estate market in 2007 thus continued in the 1st quarter of 2008. The total number of notarised purchase-sale contracts decreased more than a third compared to the 1st quarter of the previous year and by about a fifth compared to the previous quarter. The total value of purchase-sale contracts decreased by about a half compared to the corresponding quarter of the previous year and by a quarter compared to the previous quarter.


According to the latest data from the Estonian Labour Market board the rate of unemployment in April was still incredibly low - running at 2.7% - with only 17,098 people registered at the employment offices. Using the EU hrmonised methodology, the rate is rather higher - some 5.5% in March which is the latest data we have from Eurostat - but to get a comparison this is not up enormously from the 4.9% rate recorded in March 2007 using the same methodology. ie on whichever measure you use unemployment has risen, but not that much, at this point, which would explain in part why wage rises have been so stubborn in coming down in terms of their annual rate. There simply is not that much "surplus labour capacity" in Estonia, and this is of course part of the whole inflation - and now stagnation - issue.