Republic of Estonia: Selected Issues

IMF Staff Country Reports, May 24, 2018

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The paper analyzes the drivers of wage growth and inflation in Estonia.
The role played by inflation and inflation expectations in Estonia is different from those of the EU15.
The impact of inflation on wage formation is smaller in Estonia than in larger and richer countries with lower inflation volatility.
This smaller impact limited downward pressure on wages during the period of very low inflation in 2014–16.
Although there was an episode of wage growth leading inflation before the global financial crisis, the current simultaneous acceleration in prices and wages is not evidence of a developing wage-price spiral, because a significant share of the increase in inflation is owing to exogenous factors.

Focus: drivers of wage growth and inflation in Estonia.
Comparative frame: Estonia versus EU15 (differences in the role of inflation and inflation expectations).
Time periods highlighted: pre-global financial crisis episode of wage-led inflation; 2014–16 period of very low inflation; contemporary simultaneous acceleration in prices and wages (contextualized as not a wage-price spiral).

Subjects: Budget planning and preparation, Education, Expenditure, Labor, Labor markets, Public financial management (PFM), Public investment spending, Wages.
Keywords: Baltics, Budget planning and preparation, CR, EU average, Europe, gender pay gap, IMF staff calculation, ISCR, Labor markets, minimum wage, pay, Public investment spending, spiral emerging, state, wage growth, Wages, Western Europe.

International Monetary Fund. "Republic of Estonia: Selected Issues", IMF Staff Country Reports 2018, 126 (2018), May 24, 2018.