Estonia Inflation May 2008

Estonia's inflation rate declined slightly in May from the 10-year high attained in the April. The change was the result of the fact that food and housing prices rose more slowly. The annual rate fell to 11.3 percent from 11.4 percent in April, the statistics office said on Friday. Prices rose by 0.6 percent month on month.




The pace of inflation, driven by a surge in wages following an economic expansion which ran at an 8.7 percent average from 2000 to 2007, has more than doubled in a year. Rising prices are adding to the pressures on domestic consumption even as a credit crunch has been slowing growth to an annual 0.4 percent in the first quarter, the European Union's second slowest after Italy.

In May 2008 compared to May of the previous year, the prices of goods changed by
10.4%, of which the prices of food by 16.2% and the prices of manufactured goods
by 5.9%. The prices of services increased 12.9% during the year. Regulated
prices of goods and services changed by 20.5% and non-regulated prices by 8.7%.
The index was mainly influenced by the price increase of food, by the increase
in the expenditures on housing, as well as by the increase in the prices of
motor fuel. As before, dairy-, cereal- and meat products gave more than two
thirds of the price increase of food. The increase in the expenditures on
housing was mainly influenced by the increase in the prices of heat
energy.

Latvia and Estonia Retail Sales April 2008

Retail sales in both Latvia and Estonia perked up a bit in April, although as we the industrial output data I am still not sure how to interpret this, since moving Easter around so much has influenced the data to some extent.


Latvia

In comparison with March, total retail turnover in April 2008 was up by 2.3%, according to data from the Central Statistical Bureau. This growth was recorded in almost all commodity groups.

Retail trade of food products was up 0.2%, and non-food products were up 2.9%.

Compared to April 2007, retail turnover was up in April by 1.2%2, and the main driver here was the increase in sales of non-food products (by 5.5%). Sales of food products were down by 5.8% year on year.

Compared to March, in April 2008 retail trade turnover of enterprises the main activity of which is the sale of motor vehicles, motorcycles and parts thereof increased by 10.2%1, and compared to April 2007 the increase was 4.2%.

In the months January – April 2008 the turnover of motor vehicles, motorcycles and parts thereof was down by 5.3% year on year: The volume of cars sold decreased by 10.8%, but sale of motor vehicle parts, as well the sale of motorcycles and motorcycle parts grew by 10.1%.




Estonia


According to Statistics Estonia, in April 2008 compared to April 2007 retail sales were unchanged (ie 0% growth) at constant prices.

In April, the retail sales of goods of retail trade enterprises were 4.6 billion kroons. In grocery stores the retail sales of goods decreased one percent compared with the April of the previous year. Retail sales in stores selling manufactured goods increased by 2% compared with the same period of the previous year. Compared to April of the previous year, the retail sales of pharmaceutical goods and cosmetics increased 10%, the retail sales of stores selling textiles, clothing and footwear and also of stores selling household goods and appliances, hardware and building materials increased 1%. Retail sales of non-specialized stores selling industrial goods and retail sales of other specialized stores stayed at the same level compared to April of the previous year.

Compared with March, retail sales increased by 1%.

In April the revenues from sales of retail trade enterprises were 5.5 billion kroons, of which retail sales of goods accounted for about 85%. Compared to April 2007, the revenues from sales increased 9% at current prices.

Latvia Wages and Salaries Q1 2008

According to the latest data release from the Latvian Central Statistical Bureau shows that monthly average gross wages and salaries in the country in the 1st quarter of 2008 increased from 354 to 453 lats, or by 28.1% when compared with the first quarter of 2007. This marks a slight slowdown, but is still a very hefty rate of increase.

Due to the growth in the basic tax allowance and tax relief on dependants, net wages and salaries increased more rapidly than gross wages and salaries. Compared to the 1st quarter of previous year, net wages and salaries in the three months of this year increased by 29.7% and reached on average 330 lats.


However when we take into account the consumer price growth of 16.4% in the first quarter, then we can see that the real increase in wages and salaries during the period was considerably less: 11.4%. If we look at the chart below where we can see the evolution in real wages month by month, it is clear that the rate of increase in real (inflation adjusted) wages has now been declining since last summer, and continues to do so. This declining rate of increase is however far from sufficient to guarantee the competitiveness of Latvian exports, but then, we will cross that bridge when we - more or less inevitably now - get to it.



Gross wages and salaries witnessed more rapid growth in private sector – by 28.6%, compared with 27.2% in the public sector.

Private sector monthly average wages and salaries were, however, still lower than in the public sector. Average public sector salaries were 516 lats in Q1. Compared to the first quarter of 2007, the increase was 110 lats. In the private sector the numbers were 424 lats and 94 lats, respectively.

It should be mentioned that the difference between wages and salaries of private and public sectors is growing. If in the 1st quarter of 2007 wages and salaries in the public sector were 76 lats higher than in private sector, in the 1st quarter of this year this difference was up to 92 lats.

Should this trend continue then it will of course eat into private sector competitiveness since the cost of public sector wages has to be paid for in some way out of non-wage costs in the private sector.

Looking at the breakdown in wages rises by kinds of economic activity compared to the 1st quarter of previous year the most rapid increase were in education - up by 32.1% (from 327 to 432 lats), transport, storage and communication – up by 31.4% (from 372 to 488 lats), commercial services – up by 30.0% (from 378 to 491 lat), construction – up by 28.7% (from 323 to 416 lats) and trade – up by 28.0% (from 297 to 380 lats).

Compared to the 4th quarter of previous year, in the 1st quarter of this year gross wages and salaries in the country grew by 1.6%. In private sector wages grew by 8.3%, but in public sector they were down by 8.6%. The decrease may be explained with the fact that annual and holiday bonuses are paid in the 4th quarter.


Among the Baltic States the highest gross wages and salaries in the 1st quarter of this year - as in all quarters of previous year - were recorded in Estonia (788 euro), while the lowest were registered in Lithuania (623 euro). Compared to the 1st quarter of 2007, Latvia witnessed the highest rate of increase (28.1%), with Lithuania at 23.8%, and Estonia at 19.5%. Compared with the 4th quarter of 2007, the highest rate of increase during the first three months of this year was in Lithuania (4.8%), with Latvia registering 1.6%, and Estonia 0.5%.

Estonia External Trade March 2008

The rate of increase in Estonias exports fells back again in March, with exports rising at an annual 2 percent rate compared with an annual 8% increase in February. Not entirely unexpectedly imports plummeted over March 2007 (though they were running at the highest level since last November), falling at a 10 percent annual rate.

In March 2008 the share of the EU countries was 73% and the share of CIS countries accounted for 12% of the total exports (in the previous year 70% and 12%, respectively). Compared to the previous year, exports of goods to EU countries increased 7%, but to CIS countries decreased 4%. The main countries of destination were Finland, Sweden and Latvia.

In total imports the share of the EU countries was 81% and that of CIS countries 11% (in the previous year 76% and 16%, respectively). Imports from the EU countries decreased 3% and from CIS countries even 38% compared to March 2007. The biggest decrease was in the imports from Russia and Finland (by 1 and 0.3 billion kroons, respectively). The most important partners in imports were Finland, Germany and Sweden.

Estonia's trade deficit widened in March to 3.3 billion kroon ($330 million) compared with 3.0 billion krooni inFebruary, the first increase since December, although the deficit was down by 1.7 billion kroon on the 5 billion kroon deficit registered in March 2007.



Weakening exports will obviously compound the problems Estonia faces after GDP growth slowed to an annual 0.4 percent in the first quarter. With domestic demand shrinking, export strength is now the key issue. Since energy imports will remain a significant drag it is going to be hard work reducing the deficit while oil prices are so high, and GDP growth is really produced by the excess of exports over imports. So at the moment things look pretty difficult on all fronts.