Inflation pressures from labor market strengthen in Q2 - cbank

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In the second quarter employment growth in Estonia noticeably exceeded real growth of economy and the risk of the rapid growth in wages soon being passed through into prices is now larger than was earlier forecast.

«In the second quarter the growth of employment exceeded the real growth of economy which means that the productivity of the workforce decreased,» Bank of Estonia economist Orsolya Soosaar said.

According to Soosaar the strong wage growth is probably a consequence of the reduced pool of available labor. Data of the Estonian Tax and Customs board show that salary expenditure increased rapidly because the average salary paid out increased by 7 percent in the second quarter. «The risk of the rapid growth in wages soon being passed through into prices is now larger than was earlier forecast,» Soosaar said.

Due to data unadjusted for migration the yearly growth of the total number of employed people is therefore overrated but it does not greatly affect the ratios of the labor market nor the growth of employment quarter-on-quarter, Soosaar added.

«According to calculations made by the Bank of Estonia the quarter's employment growth was quite fast at 2.7 percent in seasonally adjusted terms. Although economic growth has remained modest in the last half-year the employment rate has reached 63 percent which is very close to the pre-crisis peak,» she said.

According to data released by Statistics Estonia the unemployment rate in the second quarter decreased to 8.1 percent.

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