• Chronicle
• Economic Policy
• Economic Growth
• Foreign Loans
• Consumer Price Index
• Description of the Model of Inflation
• Price Change in the Open Sector
• Price Change in the Sheltered Sector
• Analysis of Inflation
• Factor Analysis
• Component Analysis
• Budgetary System
• Population
• Labour Market
• Wages and Salaries
• Income
• Private Consumption

Chronicle

October 3. Minister of Environment, Andres Tarand introduced new regulations for issuing construction licences. Under the new procedures, licences must be obtained for carrying out geodetic surveys and geological explorations, construction-related designing and studies, construction inspection, as well as construction and repairs.

October 4. The Government decided to increase the advanced training and retraining grants for the unemployed; the minimum wages paid to the unemployed for communal relief work; and the official subsistence minimum which constitutes the basis for calculating all social benefits.

October 10. Minister of Finance, Andres Lipstok endorsed the cash-based accounting system taking effect on November 1, 1994. This type of accounting can be used by single individuals engaged in entrepreneurial activities or farming, excluding those are subject to paying VAT. Legal entities will continue using accrual-based accounting.

October 11. The Riigikogu (the Parliament) adopted amendments to the law on state dues, reducing the registration levy for non-profit organisations and institutions from 1,000 kroons to 100 kroons.

The Riigikogu also adopted amendments to the law on local governments, restricting their lending rights.

October 12. The Riigikogu adopted the law on the cadastral register and the family law. The law on the cadastral register outlines the basic principles and aims of keeping land records as well as responsibilities and punishments for violating the law. The family law stipulates various rules as to the marriage and family, the upkeep of parents unable to work, spouse and the children. Both laws take effect on January 1, 1995.

October 16. The Government formed a commission for negotiations between the Government and the unions of employers, the Central Association of Trade Unions, the Association of Trade Unions of Civil Servants, over the size of wages and salaries in 1995.

October 18. The Riigikogu made amendments in the law on state allowances for living standards, raising the minimum pension from 300 kroons a month to 360 kroons starting from November 1.

The World Bank approved a 10 million US dollars loan to Estonia for strengthening financial institutions and long-term credits.

October 19. The Government decided to increase study loans from 300 kroons a month to 400 kroons starting from November 1.

The Government endorsed the payment procedures and size of air traffic fees taking effect as of November 16, 1994.

The board of the Estonian Privatisation Agency (EPA) introduced model forms for public sale and offer of shares and purchasing, and the procedures for registering the offers.

October 21. Estonia and the Czech Republic signed an agreement on avoiding double taxation and on mutual protection of investments.

The Government allocated 18 million kroons from its reserve fund for increasing the salaries of civil servants in the fourth quarter of 1994.

Estonian and Finnish National Tax Boards signed an agreement on the exchange of information and claiming unpaid taxes.

The board of the European Bank for Reconstruction and Development (EBRD) decided to grant Hansapank a 17 million German mark direct credit line.

October 26. The Riigikogu adopted a law on the social security of the unemployed. The law specifies the procedures of registration of the unemployed, granting of unemployment benefits, attending communal relief works and training programmes. The law takes effect on January 1, 1995.

The EPA decided to announce another international privatisation tender and finalised the list of companies to be included.

October 27. The Riigikogu decided to authorise the President's prime ministerial candidate, Andres Tarand, to form a new Government.

November 1. Minister of Finance Andres Lipstok signed a decree on increasing compulsory traffic insurance up to two times.

November 2. The State Court ruled unconstitutional the participation of the members of Riigikogu in the work of the administrative boards of state companies.

November 3. Prime minister-designate Andres Tarand presented the list of the new Government to the President. The changes concerned the posts of the Ministers of justice, agriculture, interior and environment.

Representatives of the Eesti Sotsiaalpank (Estonian Social Bank) and the Eesti Tööstuse Arengu Pank (Estonian Industrial Development Bank) signed an agreement on the merger of the two banks. The Social Bank will carry on as the legal successor of the Development Bank.

November 9. The Riigikogu made amendments in the law on privatisation of flats, extending the deadline of privatisation priority for the tenants from December 1, 1994, to March 1, 1995. Pensioners were allowed to trade their privatisation vouchers to permanent residents of Estonia until February 1, 1995.

The EPA announced another international privatisation tender for 42 companies.

November 10. The Ministry of Finance issued a decree on holding customs auctions which regulates the sale of goods confiscated by the customs.

The Ministry of Finance also issued a list of jobs and services subject to the income tax and rendered by the institutions financed from the state budget. The list includes, e.g. leasing and renting rooms, contractual research, publishing and security services.

Estonian and Finnish fishery officials signed an agreement on fishing quotas in each other's fishing territories.

November 15. The Riigikogu adopted a law on amending the law on old-age pension privileges and retirement allowance which will take effect on January 1, 1995.

The Riigikogu made amendments in the law on vacations, so that for the additional vacation prescribed by the legislation will not be paid by the company but by the state social welfare budget. The amendment takes effect from January 1, 1995.

November 16. The Riigikogu ratified the agreement between Estonia and Iceland on avoiding double income and capital taxation and curbing tax evasion.

The Riigikogu also ratified the agreement between Estonia and the United Kingdom on favouring and protecting of investments, and an agreement on mutual cooperation and understanding between Estonia and Kazakhstan.

The Riigikogu made amendments and additions in the law on the process of execution, establishing the lower limit of the salary of executive officials at five minimum monthly wages.

Additions were made in the procedures of accommodating and catering for foreigners detained for illegal stay in the country.

People who have served their sentence and are released from prison will, in case of need, be granted a benefit equal in size to the monthly unemployment benefit.

November 18. The Ministry of Finance announced changes in the implementation of the law on VAT.

November 22. The Riigikogu made amendments in citizenship legislation: children residing permanently in Estonia whose parents are dead or declared missing, or have been deprived of their parental rights, are eligible for citizenship through naturalisation. This applies also to children coming from orphanages and to persons declared legally incompetent.

November 23. The Riigikogu made amendments in the law on basic and high-class secondary schools, specifying the participation of local governments in the financing of schools (excluding state schools).

The Government expanded some of the categories of child benefits established by its decree of March 17, 1994.

Economic Policy

On September 26, the Riigikogu carried a vote of no confidence in the Government led by Prime Minister Mart Laar. A month later, the Riigikogu authorised Andres Tarand to form the new Government. However, despite the changing of the Government a number of important decisions were made in the sphere of income policy.

As the actual state revenue outstripped the planned target, a number of social benefits were increased in October. The advanced training and re-training subsidies to the unemployed were increased from 300 kroons a month to 450 kroons. The minimum hourly pay for the unemployed doing communal relief work was increased to 1.60 kroons. The subsistence minimum per family member was increased from 280 kroons a month to 320 kroons. Provisions were also made for paying subsistence benefits for low-income families by local social welfare departments. The qualification standards and the use of finances allocated for that purpose were specified in a decree that took effect on October 1, 1994.

The biggest change concerned state allowances for living standards. The Riigikogu increased the state pension from 300 kroons a month to 360 kroons as of November 1. Thus, all categories of pensions increased. The funds for this came from the social tax upon which in June the Riigikogu adopted a decision of principle to use these funds only for paying state allowances. The collection of the social tax has been 12-13% higher than the predictions made at the beginning of the year. It was also decided that in the future the Government will have the right to increase state pensions on April 1 and September 1, depending on the amount of money received in the pension fund over the year.

In October, public attention was captured by the draft 1995 state budget. The first reading of the draft in the Riigikogu indicated that the introduction of drastic changes was unlikely. The 1995 revenue is planned to be 1.25 times the revenue expected in 1994 (including all additional budgets). As to the economic contents one can spot two changes: the sums allocated to salaries will increase from the expected 18% in 1994 to 21.6% in 1995 (the respective figure for 1993 was 16.7%), and the share of investments will increase from 5.7% to 8.1% (5.7% in 1993).

Investors are more and more interested in securities. According to the Board of Securities, 18 security issues had been registered by October 1, including bonds issued by seven banks, seven companies and two municipalities. In October first bonds were also issued by the Compensation Fund.

The Board of Securities granted its first official licence to the Barklay Investment Fund. Under the law adopted in August, all investment funds must apply for a licence.

The development of foreign trade showed that the high import tariffs imposed by Russia in July have not become so serious an obstacle to Estonian agricultural exports to Russia as feared. However, there were some problems with selling confectionery.

In relations with countries with developed market economy the most noteworthy event was probably the decision of the EBRD to give Hansapank a 17 million German mark direct credit line. Providing a loan not guaranteed by the Government indicates the increase of trust in the Estonian economy.

Decisions made in November can be categorised under the so-called fine regulation. Their adoption mostly derived from earlier decisions, the need to improve the implementation mechanism of new laws or eliminate conflicts between new and still existing old legal acts.

On November 15, the Riigikogu changed the pension laws. Since January 1, 1995, working part-time is not included in the years of service entitling one to a retiring allowance. The retirement age will be increased by one year from the beginning of 1995, and by six months every year from 1996 to 2003.

On November 23, an agreement was signed between the Government and TALO, the Association of Trade Unions of Civil Servants, on the salaries of employees of state-budget financed institutions in 1995. Under the agreement, the salaries will have to be increased at least 1.3 times (in comparison with the official salary of December 1994, without Christmas and other benefits). The agreement takes inflation into account: when the consumer price index (CPI) increases 1.3 times in 1995, new talks will be held with the Government for further salary increases within one month. The Government had already decided in principle to increase salaries while drafting the 1995 state budget. The negotiations were actually about the practical implementation of this decision.

1994 was characterised by the public debate about the need for protecting Estonia's domestic market. The main focus is on the specific long-term problems of Estonia's so-far-liberal trade policy in connection with European integration. The more topical issues concerned the neighbouring countries. On July 1, Russia imposed discriminatory import tariffs on Estonia. Latvia introduced new customs tariffs on December 1. These make it harder for Estonian food products to reach the Latvian market. The Baltic free trade agreement only covers manufactured goods.

Inflation was comparatively low for autumn - 1.1% in October and 1.6% in November. At the same time, some factors that may increase inflation in the coming months are anticipated. Thus, the National Competition Board has approved the increase of train fares by an average of 36% (42% on local trains). In Russia, the so-called scissors have formed between inflation and the exchange rate of the ruble. In November, consumer prices increased 14.1% in Russia while the exchange rate of the ruble only fell 4.8% against the kroon. This could put pressure on consumer prices in Estonia in December and January.

In foreign relations a noteworthy event was the doubling of the share capital of the Estonian Investment Bank, to 9 million ecu. The new stockholders include also such investment funds as the Finnfund and the Swedfund. The Investment Bank will also be eligible for a IMF loan meant for the restructuring of the economy. In November approximately half of this loan, that is 220 million kroons, had reached seven Estonian banks (Hansapank, Eesti Ühispank, Tallinna Pank, Eesti Tööstuse ja Ehituse Kommertspank, Virumaa Kommertspank, Raepank and Põhja-Eesti Pank).

Economic Growth

In order to evaluate indirectly the dynamics of economic growth, the change in the components of the gross domestic product (GDP) is modelled through analogous indicators. Under the income method, the GDP components are profit, wage, indirect taxes, amortisation and subsidies. Under the consumption method, GDP components are private consumption, public consumption, investments, trade balance and change in reserves.

The aggregate index of economic growth is calculated as the geometric mean of the income-based and consumption-based indices. To eliminate the influence of seasonal factors, the increment in the components of the growth index has been smoothed using the method of sliding average.

In October, the economic growth index (from the previous month) was -0.4% and in November, -0.2% (see Figure 1). The difference between October and November consisted in the different dynamics of the income and consumption indices. While in October incomes decreased and consumption increased, then in November the situation was reversed. Compared to the average of the previous three months, the October growth index was -4.2%, and the respective November figure was -1.7%. Against October 1993, the growth index of October 1994 was +3.0%, and the November index was +5.4% against November 1993.

In the third quarter of 1994, the level of economic growth was slightly smaller than that of the previous quarter. According to the latest updates, the third quarter growth index was -1.3%. The growth index for the second quarter was +6.7% as compared to the first quarter. There were no significant changes in October and November though.

The comparison of the growth index to the aggregate quarterly market index of the Estonian Market Research Institute is given in Figure 2.

The decrease in the components of the income-based growth index stopped in October, to be replaced with a growth tendency (see Figure 3). In November, the index increased due to increases in wages and taxes, but decreased due to the changes in profits and amortisation (see Table 1).

The increase of the real income in November partly resulted from the slow-down of the increase in consumer prices (1.6% in November 1994, 4.0% in November 1993). As wages increased more rapidly in 1994 than prices, the average real wage also increased.

The consumption-based growth index increased in October mostly due to increases in export and investments, and in November due to increases in private consumption, export and investments. The index decreased in October due to changes in import, private and public consumption, and in November due to changes in import and public consumption (see Table 1). In the last few months the negative impact of net export (balance of export and import) has remained a stable -4 percentage points. This has been compensated mostly by increases in investments. The impact of private and public consumption was near zero in the second half of 1994. Thus, the major factors influencing the consumption-based growth index in the second half of the year were export, import and investments.

Foreign Loans

No new loans were taken in October. According to the Ministry of Finance, the total sum of foreign loans taken and guaranteed by the state amounted to 343.1 million USD on November 1 (based on the exchange rates of Eesti Pank as of November 1). A total of 112.8 million USD had been used by November 1, plus another 62.4 million USD from the IMF.

A survey of foreign loans and their use is given in Table 2.

Consumer Price Index

In 1994 there were great fluctuations in the consumer price index (CPI): while consumer prices increased 20.8% in the first quarter then the increases were 5% and 7.2% in the second and third quarters, respectively. Comparison of the quarterly average inflation with the level of the previous quarter clearly points to a tendency towards decrease: the average CPI in the first quarter was 16.9%, in the second quarter - 11.9% and in the third quarter -5.5%.

The increase of CPI slowed down in October as well, amounting to +1.1% against the previous month (which corresponds to an annual inflation of 14.5%). The inflation of October 1994 was below the monthly average of the last 12 months (3.5%) as well as the average for the last three months (2.3%). In November, the CPI increase accelerated but still remained modest, being 1.6% compared to the previous month, which corresponds to the annual 20.7% (see Figure 4). In November, too, inflation was smaller than both the twelve-month average (3.4%) and the three-month average (1.8%).

The comparison of the CPIs of Latvia, Lithuania and Russia (see Figure 5) indicates an acceleration in the consumer price increase in Russia in October, amounting to 15.1% from the previous month. As the exchange rate of the Russian ruble dropped 23.5% against the Estonian kroon from September to October, the October price rises in Russia did not boost Estonian inflation. The November price increases in Russia (14.1%) were higher than the fall in the exchange rate (4.8%) and this could put pressure on prices in Estonia in December and January. In Latvia and Lithuania, too, CPI was higher in October than the respective Estonian figure.

Based on the consumer basket statistics of the State Statistics Office (SSO), prices increased 37.5% in the 10 months of 1994. Calculations based on the last twelve-month average consumer basket of private consumers indicate a 27.5% rise. Due to the SSO's new consumer basket the CPI was thus 10% overvalued for the 10-month period. In September and October the CPI based on the average consumer basket figures outstripped the respective SSO indices by 0.4% and 0.3%.

Description of the Model of Inflation

To explain the mechanism of inflation, the open and sheltered sectors of the economy are studied separately as the principles of price formation and therefore the manifestations of inflation, too, are different in those sectors.

The open sector comprises those goods and services that are open to international competition. The open sector produces either for export, i.e. competes on the foreign markets, or for the domestic market where the production competes with imports. The prices of open sector products are restricted by international constraints.

The sheltered sector (housing costs, for example) is not influenced by international competition. Therefore, prices in the sheltered sector have no constraints and the producers are free to set their own prices.

The inflation indicator expressed in the form of the CPI is derived by combining the price changes in both sectors. In the SSO consumer basket the share of the open sector is 71.4% and that of the sheltered sector 28.6%.

Price Change in the Open Sector

The model we are analyzing indicates the dependence of price changes in the open sector on the following factors:

a) deviational money supply;

In Estonia, the money supply is determined by demand. A deviational money supply reflects a short-term imbalance between the demand and supply. The money supply is viewed on the basis of M2D in Eesti Pank's balance sheet (including Government deposits). The money demand is valued by a linear regression model based on factors such as the economic growth index, short-term loan interest and expected inflation.

b) price changes abroad expressed in Estonian kroons;

This factor indicates the increase in real prices caused by the internationalisation of the price level. For understandable reasons, the prices of exported and imported goods correspond to the international level. These prices, in turn, determine the prices of goods offered on the Estonian domestic market.

c) fiscal policy;

In certain conditions, it can act as an inflation factor. The fiscal policy indicator is derived dividing the index of accumulating corporate income tax, VAT and excise tax by the nominal GDP index.

d) seasonal fluctuations;

These are an important inflational factor in different months.

Price Change in the Sheltered Sector

According to the model, the price change in the sheltered sector depends on the following factors:

a) price increase in the open sector;

This results in a proportional (or quicker) price increase in the sheltered sector. The internationalisation of the open sector prices spreads to the sheltered sector through wage increases and products that serve as production inputs in the sheltered sector.

b) prices abroad;

The influence of prices abroad is clearly greater than in the open sector. This corresponds to the supply-side price formation in the sheltered sector.

c) fictitious factor;

It results from the fact that prices in the sheltered sector are largely determined administratively and their liberalisation has been divided into stages.

Analysis of Inflation

Factor Analysis

In the 11 months of 1994, prices increased 22% in the open sector, and 82% in the sheltered sector (see Figure 6). In the same period the year before, the increase was 28% in the open sector and 59% in the sheltered sector. While in 1993 the increase rate of prices in the sheltered sector was twice of that in the open sector, the difference in 1994 was nearly fourfold. This was mostly due to the continuing liberalisation of prices still controlled administratively (rent, public transport, electricity).

Prices in the open sector increased 1.1% in October and 1.8% in November. In November, all open sector inflation factors included in the model had a positive influence (see Table 3).

In the sheltered sector, prices increased 1.0% in October and 1.3% in November. Some of the factors had an increasing, and some a decreasing influence on the price rises in the sheltered sector.

Component Analysis

Services became 1.2% more expensive in October and 1.6% in November (a 76.6% increase since the beginning of the year), and the respective increases in the prices of goods were 1% and 1.7% (20.7%). The prices of manufactured goods increased 1.6% in October and 2.2% in November (19.6% increase since January), and the price of food went up 0.7% and 1.4% respectively (21.4% since January).

In October, the main categories of goods and services leading to the CPI increase were food (yielding 22% of the increase), clothes and footwear (17%), leisure goods and services (16%), and housing expenses (14%). At that, the share of housing cost increase in the overall price increase was nearly 2.5 times smaller than the last 12-month average in October, and nearly 4.4 times smaller than the last 3-month average.

The leading category of goods and services contributing to the CPI increase in October was electricity, heating and fuel, which prices became 1.7% more expensive, being responsible for 13.8% of the total CPI increase. This was mostly caused by increases in the prices of gas and heating resulting from earlier increases in the prices of oil-shale and electricity, and planned price rise of peat briquette.

In November, the main factor in CPI increase was the price rise of milk and dairy products which became 7.9% more expensive, amounting to 28% of the total CPI increase. The causes for the increase can be found in the seasonal increase of purchasing prices, as well as increases in electricity prices and other production costs.

Rent, water and sewerage became 2.3% more expensive in November, giving 13% of the CPI increase. The rises were the sharpest in rent tariffs (2.5%), communal services (1.6%) and waste disposal (2.7%).

The price increase in private transport by 2.1% (10% of the overall CPI increase) was mainly the result of the 5.8% increase in car repairs and servicing.

The price increases in such categories of goods as clothes, bakery products and other foodstuffs influenced the overall increase in an equal measure, accounting for 7% of the CPI increase. The increase in the category of other foodstuffs was mostly linked to the 5.1% increase in the price of coffee.

Due to the wider supply of locally-grown fruits and vegetables the prices dropped, lowering the CPI 6.1% in October and 7% in November.

Budgetary System

Compared to the average monthly revenue collected over the past ten months, the November revenue was 5% larger. Except September, the monthly fluctuations in the collection of the revenue duplicated the fluctuations of 1993 (see Figure 7). The decrease in the revenue in November in comparison with October was also similar to that in 1993 and resulted from the cyclical nature of collecting income tax from companies. This cycle was also expressed in the changes in the breakdown of income (see Figure 8).

By the beginning of December, 90% of the planned annual revenue had been collected. A satisfactory level would have been 91-92%. In general, the major taxes (VAT, personal income tax, corporate income tax and excise tax) which balance each other should be enough to guarantee the annual target or even a small surplus. However, the collection of the income of state enterprises and various service fees has fallen short of the target.

This, however, does not mean the failure of the 1994 budget policy. An analogous situation developed in 1993: the actual revenue fell short of the planned target and expenses had to be cut correspondingly. But the surplus of current income from expenses was bigger in the second half of 1994 than in 1993 (see Figure 9).

Due to the wage increases the revenue of local budgets was bigger in the second half of the year than in the first half (see Figure 10).

The collection of revenue for the social and health care funds is estimated nearly 12% bigger than expected at the beginning of the year. The exact collection, however, depends on the tax discipline.

On the whole, the state revenue should turn out 15-16% bigger than expected at the beginning of the year. At the same time, analyses show that more attention should be paid to two tendencies that have become stronger since the second half of 1993. First, the greater impact of foreign trade on state revenue through the VAT, caused by the quicker growth of trade activity as compared to the rest of the economy. The quicker the deceleration of inflation in the open sector, the more caution should be given to predicting the next year's revenue. The dependence of its size on the CPI increase is smaller than before (see Figure 11).

Population

At the beginning of 1994 there were 1,506,927 permanent residents in Estonia. Over the year, this number decreased due to both emigration and a negative natural increase. By the end of November the population decrease caused by the low birth rate (6,857 more people died than were born) had already surpassed the respective figure for the end of 1993 (5,943) (see Table 4).

The emigration balance was more or less the same as the difference between the births and deaths. According to preliminary data, it was -7,000 by the end of November. In 1993, the negative migration balance (-13,779) accounted for 70% in the population decrease while a negative natural increase accounted for 30%.

Labour Market

According to the National Labour Market Board, unemployment continued to decrease in October. However, November was marked by the characteristic winter period increase. The number of those receiving unemployment benefits was 12,141 on December 1, that is 3.2% more than it was a month ago (see Table 5). In 1994, the number of the jobless receiving unemployment benefits has been smaller than in the previous year. As of December 1, their number was nearly 4,000 smaller than the monthly average for the last 12-month period. Experts of the National Labour Market Board put the decrease in the number of those receiving unemployment benefits down to the following reasons:

• 1) people have adapted to the situation on the labour market and if necessary seek employment farther from home, even abroad;
• 2) the unemployment benefit is small (it is hard to manage on 180 kroons a month) and application for it involves a lot of red tape.

Besides the receivers of unemployment benefits also the people who have turned to employment offices to seek a job can be considered unemployed (only about 1% of them work). In November, the unemployed and the job-seekers together numbered 36,111, that is 6.3% more than in October. Thus, the number of job-seekers increased considerably more in November than the number of those entitled to unemployment benefits.

The rate of unemployment (the ratio of those receiving unemployment benefits to the working-age population) remained at 1.4% in November (see Figure 12). When based on the ratio of job-seekers to the total of the gainfully employed and the job-seekers, as recommended by the International Labour Organisation, the unemployment rate was 5.3% in November. As indicated by surveys conducted by EMOR pollsters, less than half of the total number of job-seekers turn to the employment offices, and therefore the actual unemployment rate in Estonia is probably higher.

As to the different parts of the country, unemployment was continually high in Ida-Virumaa, Põlva and Võru counties (see Figure 13). In November, the number of job-seekers per working-age population was the highest in the Võru county.

In November, the employment offices received 20% less job offers than in October. By the end of November, the employment offices had 1,146 vacancies, half of them in Tallinn.

During November, 725 more unemployed attended retraining programmes than in October. After the grants paid to retrainees were increased from 270 kroons a month to 450 kroons in October (outstripping the unemployment benefit 2.5 times), the interest in retraining programmes has increased.

Wages and Salaries

According to the Ministry of Social Affairs, the October average wage amounted to 1,792 kroons, and to 1,870 kroons in November. Thus the wages increased 4.4% as compared to the previous month (see Figure 14). The November wages outstripped the last three-month average by 8.8%, and the last 12-month average by 20% (see Table 6). In November the average monthly wage in Estonia equalled 152 US dollars, based on the dollar/kroon average monthly exchange rate of Eesti Pank.

Over the post-monetary reform period (compared to July 1992) wages have increased 2.8 times while consumer prices have gone up 2.9 times. Therefore, the real wages have not yet reached the post-reform level. In 1993, the average nominal wage increased 1.5 times while consumer prices increased 1.36 times; for the 11 months of 1994, the respective figures were 1.432 and 1.397. Thus, the increase in the average wage has outstripped the increase of consumer prices over the past two years.

In the 11 months of 1994, the annual average increase of real wages was 3.9% (the average of monthly increases of real wages compared to the same month in the previous year).

According to the selective study of family budgets, the average gross wage per one wage-earner increased 4.6% in November while the net wage increased 5%.

Income

The sharp September increase in family income was followed by a 5.8% decrease against the previous month in gross income in October and 8% decrease in net income. The October gross income (including taxes) amounted to 1,106 kroons and net income 931 kroons per family member. As inflation was 1.1% in October, the real net income decreased 9% as compared to September, corresponding to approximately the July-August level.

In November, family income followed the 1994 pattern of increase in jumps (see Figure 15). The gross income increased 13% as compared to October (6.5% compared to September), amounting to 1,251 kroons per family member. The net income increased 14.8% compared to October (5.7% compared to September), amounting to 1,069 kroons per family member.

Owing to the comparatively low inflation (1.6% in November) the increase in real income was rapid (net income increased 13 and gross income 11.3%), and the net income level, as viewed since the monetary reform, fell short of only the June 1994 and December 1993 levels. For the entire 11-month period, the total real income was only 0.4% smaller than the matching income for 1993.

The comparison of the structure of the gross income with November 1993 (see Table 7) indicates only minor differences.

Data on the differentiation of income is presented in Table 8. It shows that from the point of distribution of income November was an ordinary month, both compared to the averages of the last three-month period and the last 12-month period, but also in comparison with November 1993. The peculiarity of November 1994 was the relatively larger share of low-income families in total income, similarly to November 1993.

According to the dynamics of the Gini coefficient, the differentiation of income changed much more in 1994 than in 1993. This resulted from the actual beginning of privatisation and compensation of illegally nationalised property, and the fact whether the sample of families studied (an average of 600 families) included some of such cases or not. Therefore, the data for a longer period (a quarter or a year) should provide a more reliable picture.

The share of families where the income per family member was below 450 kroons was 14.2% in October and 11.3% in November. The average income in US dollars increased 73% from November last year and amounted to 87 dollars per family member in November 1994.

Private Consumption

As the total income decreased in October, the nominal consumption decreased 12.2% as compared to September, and amounted to 834 kroons per family member. With income increasing in November, consumption also increased, to 920 kroons per family member. However, this increase was smaller than the increase of income.

Due to large fluctuations in real consumption (in prices of June 1992) in recent months (see Figure 16) it can only be compared to the average values of the previous periods. The November real consumption was 3.6% higher than the last three-month average and 2.7% higher than the last 12-month average (see Figure 17).

In the structure of consumption (see Table 9) the share of food decreased to 36.5% (40.6% in October). This resulted from the overall increase in consumption.

The share of food was relatively close to the respective figure used for the SSO consumer basket. But the share of clothing has increased lately and differs markedly from the respective indicator in the consumer basket of the SSO. The share of housing expenses also increased in November but the increase was smaller than in November 1993. Although housing expenses account for 19.7% in the SSO consumer basket, it has to be taken into account that a large proportion of low-income families (about 9%) receive housing subsidies which reduces the actual expenses. The share of transportation expenses remained low also in October. The increase of total income is accompanied by the increase in the share of other goods and services in consumption.

The savings of families increased rapidly in the autumn of 1994. In November the increase was 54% against October (58%). In October savings amounted to 97 kroons per family member and to 149 kroons in November. Savings kept at home increased more rapidly as can be seen from the figure for investments which increased 22% in November, and amounted to 60 kroons per family member. The increase in home-kept savings accompanying the increase of income is a normal phenomenon (see Figure 18), particularly prior to major expenditures during the Christmas season.

The impact of inflation on the consumption of families belonging to different income categories was the same from September to November and did not depend on the actual structure of consumption. From January to November 1994, the cost of the average consumer basket of low-income families (earning less than one minimum wage per family member) increased 31.2%; for the wealthier families (with income more than three minimum wages per family member) the average consumer basket got 29% more expensive.