TALLINN - Estonia's Central Bank called on the government on Wednesday to reduce its budget deficit and for efforts to improve competitiveness by not allowing recent high global commodity prices to pass through to broader price and wage increases.
Estonian joined the euro zone from Jan. 1. 2011, but has seen prices increase by over 5 percent year-on-year in recent months as higher global food and energy prices impact on prices.
The country has been warned by the European Central Bank to try to keep price increases under control.
"Looking ahead, it is very important to avoid the pass- through of commodity prices, since this would harm the competitiveness of enterprises," the bank said in an economic policy statement.
The bank added that in order to reduce the effect of a commodity price pass-through, it was necessary for the government to focus on improving domestic competitiveness and on the setting of administered prices, as well as, to pvent wage growth from exceeding productivity growth.
The bank also said that it was essential that the government continue with its plans to reduce the budget deficit and improving the efficiency of the public sector.
"Higher tax income, which results from faster growth, should first and foremost be used for achieving fiscal balance and restoring reserves," the bank said.
Reporting by David Mardiste ; editing by Patrick Graham