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Economist: Lowest paid workers hardest hit by cost of living crisis

Rasmus Kattai.
Rasmus Kattai. Source: ERR

The cost of living crisis over recent years, has led to a fall in purchasing power. Those impacted most by the crisis are the people earning the lowest wages, Bank of Estonia (Eesti Pank) economist Rasmus Kattai told ETV show "Terevisioon."

"The increase in the cost of living has had the biggest impact on people's livelihoods," Kattai said. "Life is a third more expensive than it was three years ago. This is the new price level that people have to cope with. The purchasing power of the average wage has not recovered to pre-crisis levels."

The purchasing power of the average wage in Estonia has is now at 94 percent of the April 2021 level. In August 2022, it fell to a low of 87 percent.

"Half of the recovery period still lies ahead. We have reached the  [same level as at] the end of 2019 in terms of purchasing power, or, in other words, four years ago," Kattai said.

Kattai added however, that the next stage of the recovery will be anything but smooth. "This period will last around one and a half to two years," he said.

"If we look at wage levels, the biggest drop in purchasing power has affected [those earning] lower wages," Kattai pointed out. "The proportion of goods in their shopping baskets with larger price increases is higher."

At the same time, the current crisis differs from previous ones, as most people still have jobs, Kattai said. The number of people currently employed in Estonia is among the highest on record.

"We will probably see another rise in unemployment at the start of the new year," Kattai said.

While price rises in Estonia were among the highest in Europe, they have now clearly levelled off at four to five percent. However, inflation remains high, Kattai added.

The Estonian economy has now been in decline for seven consecutive quarters, with Kattai admitting that that is quite a long time. "Right now, our growth engine, the Estonian export sector, is not doing well. That is where the biggest difficulties and risks are."

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Editor: Michael Cole

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