The Bank of Estonia said wage growth and price increases will slow in the coming years alongside the country's economy, which will be effected by the global economic slowdown.
The bank's latest economic forecast shows the economy will grow 3 percent this year and 2 percent in the next two years.
Demand for labor is declining as the economy slows, and so wage growth is also expected to slow from 2020. The years of rapid price growth have also passed, a statement from the bank said.
The impact of the economic slowdown is already visible on the labor market as there are fewer job vacancies and companies are not hiring as many people as in previous years.
This will be reflected in people's incomes. While the average salary will increase by 7.1 percent this year, it will increase by about 5 percent in the next two years.
As wage growth eases, price growth will also slow down. Price increases will also be slowed down by the impact of tax increases, lower energy prices and more restrained import prices. The bank forecasts 2.3 percent price growth for this year and less than 2 percent for the next two years.
The main reason for the slowdown in Estonia's economic growth is weaker export markets and lower demand for the country's production. Mainly, it will slow down the growth of industrial production.
The services sector and companies targeting the domestic market are still doing well, as they do not depend as much on the well-being of major export markets.
As the exact content of the planned pension system change and its date of entry into force are still unclear, their impact on the bank's September forecast is not taken into account.
Editor: Helen Wright