Inflation Rarely sharply inflated inflation punishes Finns very unevenly – Russia’s attack further accelerates inflation

Economists interviewed by HS believe that Russia’s attack on Ukraine will raise prices in Finland.

Finland Inflation, the general rise in consumer prices, accelerated in January to its fastest pace since September 2008.

Although food prices have also been rising sharply recently – many have come across it, especially on the coffee shelf – the biggest single factor in accelerating inflation is rising energy prices.

It was the energy experts who were first interviewed by HS when they were asked about their views on the January inflation figures.

OP’s chief economist Reijo Heiskasen According to Finland, inflation rates in Finland were slightly higher than expected in January, especially as the price of electricity rose sharply at the end of last year.

However, according to him, the inflation picture in Finland is even more moderate than elsewhere.

OP’s Chief Economist Reijo Heiskanen.

“If the rise in energy prices slowly melts away from this, we will end up with more moderate figures, but still much higher than before the interest rate crisis,” says Heiskanen.

“At the moment, it seems probable that inflation in Finland will average more than three per cent this year, and next year it may be in the figures starting second.”

Pellervon Economic Research Forecasting Manager Janne Huovarin According to the Commission, the rate of inflation in Europe and Finland is now explained by energy prices and the recovery from the interest rate pandemic.

“Incidentally, there is not yet high, too fast inflation in Finland and Europe. For example, it is not yet visible in salaries. ”

He also points out that current inflation figures come after several years of very low inflation.

The Forecast Manager of the Laboren Research Institute (formerly the Wage Earners Research Institute) points out the same issue. Sakari Lähdemäki. According to him, the high inflation rate in January was even somewhat expected in Finland.

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“It was known that inflation has started to rise sharply and the situation a year ago was so different. Now, at the beginning of the year, we will probably see quite high figures, but where the situation is going will be seen later this year. ”

Read more: Gasoline, coffee and electricity are rising sharply in Finland – Prices have started to rise almost vertically, the graphics show the rate of inflation

Economists are fairly unanimous that the impact of accelerating inflation on the daily lives of Finns is very unevenly distributed regionally.

“If there is a detached house with direct electric heating and you drive a lot, then it is heavily affected,” says OP’s Heiskanen.

Laboren Lähdemäki reminds that Finland is a long-distance country, and some households are more dependent on fuel and energy costs than others.

The rise in energy prices is a significant reason for the acceleration of inflation in Finland and the euro area.

“Do you live in a big city or in the countryside? There is now a big difference in the rise in prices in the consumer basket between these two regional factors. If the price of food and other products starts to rise, then the rise in inflation will affect more and more households. ”

Huovari of Pellervo’s economic research also highlights companies whose raw material prices have risen sharply and whose increased costs have not been passed on in the production chain.

Elsewhere In the world, for example, inflation in the United States and the United Kingdom has been even higher in recent months, at between 5% and 7%.

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Read more: Inflation in the United States accelerated surprisingly in January: the last time prices rose was as fast as 40 years ago

Experts do not believe that Finland’s inflation figures will rise to such high levels. They point out that the situation in the United States is different in many ways from that in Europe.

“Rapid inflation in the United States is clearly partly the result of fiscal policy mistakes made during the interest rate crisis,” says Huovari of PTT.

He refers in particular to the massive scale of stimulus measures, but also to the way in which they are carried out, namely the distribution of money directly to the people.

“Attempts were made to revive demand even though there was no shortage of demand and people could not consume or produce. When money was put into the economy at that point, it overheated. ”

According to Huovari, the same can be seen on a small scale in some European countries.

In Germany, for example, VAT was temporarily reduced in the midst of the interest rate crisis. According to Huovar, the rise in prices in Germany is faster than in the rest of Europe, precisely as a result of the reduction in VAT.

“The tax cut didn’t help prices, but when it was restored to its previous level, prices went up. Fortunately, no such thing has been done in Finland, although we also pointed out that tax cuts should be made, ”says Huovari.

Economists would not embark on sudden movements in wage negotiations or political decision-making based on recent inflation figures.

According to Lähdemäki, the recent rather modest wage increase agreements are justified because there are features in the inflation trend that could be expected to pass.

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“Supply-side bottlenecks caused by the corona will disappear, which will probably lower inflationary pressures. It may be that the situation will calm down in this respect as we move forward a year, ”says Lähdemäki.

On Thursday, a new threat arose over Finland and the international economy when Russia invaded Ukraine. Experts agree that the attack and retaliatory sanctions are likely to further increase inflationary pressures.

“Nevertheless, if inflation started to be terribly predictable, there would be a risk that it would further increase inflation and inflation expectations,” says Lähdemäki.

“The decline in foreign trade with Russia would affect Finland more than in the rest of the euro area. Adapting to this would be facilitated by improved cost competitiveness, which would be easier if costs rise faster than before in the competitor countries, ”says OP’s Heiskanen.

PTT’s Huovari says the attack has clearly raised the price of both oil and gas.

“However, it must be remembered that the current war will not directly affect oil or gas production, at least in the short term, like many previous crises involving oil-producing countries, especially in the Middle East,” Huovari says.

Felt believes that fears of rising energy prices should not prevent strong sanctions on Russia. He considers it important that exceptional measures be taken to increase energy supply so that prices do not rise.

He thinks it is clear that the war will raise the price of food if the war continues for a long time.

“The war is directly affecting the world’s most important wheat-producing regions, and the price of wheat has also clearly risen. This, of course, has an impact on food prices, which have been on the rise since the Russian invasion.”

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