Estonian Entrepreneurs’ and
Consumers’ Price Expectations
Marje Josing ; Evelin Ahermaa
November 2005
Key words
• Joining the EU
• Entrepreneurs’ price expectations
• Price Indices - changes
Price Changes – Entrepreneurs’ Plans (1)
(next 3 months, BTS balances)
80
Increase
70
60
50
40
30
20
10
Decrease
Construction
Manufacturing
2005
2004
joining EU
-20
2003
-10
2002
0
Retail Trade
Price Changes – Entrepreneurs’ Plans (2)
(next 3 months, BTS balances)
Decrease
Services (9 branches)
2005
joining EU
2004
Increase
2003
60
50
40
30
20
10
0
-10
-20
-30
-40
Restaurants
Tourism
Price Changes – Manufacturing
BTS
50
40
PPI
10
Increase
8
2
0
0
-10
-20
-30
Decrease
2005
10
joining EU
4
2004
20
2003
6
2002
30
r=0,74
Entrepreneurs' plans for next 3 months (BTS balances)
Producer Price Index (PPI) annual change, %
-2
-4
-6
Price Changes – Construction
BTS
80
70
CPI
16
Increase
14
8
30
6
20
4
10
2
0
0
2005
40
joining EU
10
2004
50
2003
12
2002
60
r=0,69
Entrepreneurs' plans for next 3 months (BTS balances)
Construction Price Index (CPI) annual change, %
Factors Limiting Building Activity
(% of enterprises)
90
80
70
60
50
40
30
20
10
0
2003
2004
Insufficient demand
2005
Shortage of labour force
Price Changes – Retail Trade
BTS
60
50
CPI
12
Increase
10
20
4
10
2
0
0
-10
-20
Decrease
2005
6
joining EU
30
2004
8
2003
40
-2
r=0,42
Entrepreneurs' plans for next 3 months (BTS balances)
Consumer Price Index (CPI) annual change, %
-4
Conclusions
• Entrepreneurs’ planned to increase prices
in connection with joining the EU
• Price increase was accelerated before
and stabilized after joining the EU
Consumers expectations
• Inflation is historically very important and
sensitive problem for Estonian consumers
• Inflation perception evaluating strongly
consumers household and general
expectation
• Consumers inflation expectations are weakly
connected with purchasing expectations
Consumer price index
(%, compared with last year)
60
50
47,7
40
30
29,0
23,1
20
11,2
10
8,2
3,3
4,0
5,8
3,6
1,3
3,5
4,0
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005*
*prognoses
Consumers price expectations and prognoses of
households and general economic situation
100
80
60
40
20
0
-20
-40
2001
2002
2003
2004
2005
Consumers price expectations(balance)
households situation prognoses(balance)
Estonian economic situation prognoses(balance)
r =- 0,75
r =-0,89
Consumers price expectations and prognoses of
major purchases (balances)
100
80
60
40
20
0
-20
-40
2001
2002
2003
2004
Consumers price expectations(balance)
Major purchases prognoses(balance)
2005
r = -0,27
Inflation and joining with the EU
• Joining with European Union increased
inflation in Estonia
• Before joining the question of prices was the
most interesting and critical problem for
Estonian consumers. Estonia joined with EU
in May 2004. In April 2004 consumers
expected that over the next 12 months
Estonian prices will be 19,7 % higher (real
HICP was 3,7%).
Consumers evaluations of prices over the last 12 months
and HICP
HICP
Balance
70
6
Prices increase
60
5
50
4
40
3
30
2
20
10
1
Prices decrease
0
Joining with EU
20
05
20
04
20
03
0
Consumers evaluations (balance)
r =0,72
HICP
Consumers prognoses of prices over the next 12 months and
HICP
HICP
Balance
90Prices increase
80
70
60
50
Shift 12 months
40
30
20
10Prices decrease
0
6
5
4
3
2
1
0
20
05
20
04
20
03
Joining with EU
Consumers prognoses (balance)
r = 0,45
HICP
Consumers prognoses of prices over the next 12 months and
HICP
HICP
Balance
6
Prices increase
5
4
3
Shift 7 months
2
1
Prices decrease
0
Joining with EU
20
05
20
04
20
03
90
80
70
60
50
40
30
20
10
0
Consumers prognoses (balance)
r = 0,68
HICP
Consumers price expectations (%) and real
HICP (%)
25
20
15
10
5
Consumers expectations(%)
20
06
20
05
20
04
0
HICP(%)
Euro
• Estonian government have a plan to join with
euro-zone from 1-st of January 2007.
• Main problem for Estonia - Maastricht
agreement’s inflation criteria.
• Estonian economy needs price convergence
with EU market and Estonian fast economic
development fosters inflation (real increase
of GDP was 7,8% in 2004).
Price level indices of GDP
(2002, PPP, EU15=100)
45
46
53
53
Lithuania
Latvia
Poland
Estonia
70
73
Slovenia
Portugal
83
Spain
100
107
110
114
EU -15
Germany
Finland
Sweden
128
Denmark
0
20
40
60
80
100
120
140
Change of GDP in Estonia
(at constant prices, compared with previous year, %)
12
10,5
10
7,3
8
6
6,4
4,5
4,5
1995
1996
7,2
7
2002
2003
7,8
8
2004
2005
5,2
4
2
0
-2
1997
1998
1999
-0,1
2000
2001
HICP and Maastricht criteria
(%, Oct. 2004-Sept. 2005, 12 months avarage)
8
6,86
7
6
5
4
3
Criteria = 2,45
2
1
3,36
3,41
ES
EL
3,73
4,16
4,22
HU
EE
3,02
2,50
1,43
0,61
0,82
FI
SE
0
NL
BE
LU
PL
LV