Finland money

With relatively modest inflation, Finland is no longer so expensive by EU standards | News

While Finland is facing its highest inflation in many years, prices are now rising much faster in the rest of the euro zone than here.

Finland used to be considered an expensive country, but now uneven inflation across Europe is changing that. Image: Henrietta Hassinen / Yle

When the single currency, the euro, was launched more than 20 years ago, the purchasing power of Finns was among the lowest in the EU, along with those of Spain, Portugal and Greece .

Since then, relative purchasing power has improved as prices have risen less here than elsewhere, economists say.

Since the turn of the millennium, the purchasing power of Finns compared to other Europeans has improved. Wage levels have increased, while inflation has been slower than elsewhere.

While Finland is facing its highest inflation in many years, prices are now rising much faster in the rest of the euro zone than here.

This means that the purchasing power of Finns is improving compared to many other European countries which were previously more expensive, according to an economist at the Bank of Finland. Aino Silvo Yle said.

Baltics face sticker shock

According to EU statistical office Eurostat, Finnish consumer prices rose at an annual rate of 5.6% in March.

Meanwhile, in Spain, for example, inflation was rising at an annual rate of almost 10%, in the Netherlands almost 12%.

In neighboring Baltic countries, Estonian prices rose at an annual rate of 14.8%, those in Latvia by 11.2% – while Lithuania recorded the highest rate in the euro zone at 15.6 %.

Annual inflation in the euro zone was estimated at 7.5% in March, against less than 6% in February, according to Eurostat.

The rise in consumer prices was mainly due to the sharp rise in energy costs following the Russian attack on Ukraine in late February.

However, Silvo said the current situation is unlikely to significantly alter long-term trends.

“I don’t think the period when inflation rates differ greatly between countries will last that long,” she said.

However, Finland could still overtake Germany, for example, in terms of living standards and measures of purchasing power this year, she suggested. In terms of standard of living, Germany has only slightly overtaken Finland in recent years.

At the current rate, Finland is also catching up with other prosperous eurozone countries in terms of purchasing power, such as the Netherlands, where prices are rising much faster than before.

Although Finland’s relative position is improving, it is important to remember that the purchasing power of residents here is rapidly declining due to inflation, Silvo pointed out.

“Everyone’s position can deteriorate, but some less than others, and Finland can be among [those who survive] better if inflation does not accelerate as much here as elsewhere,” she explained.

“If Switzerland, Norway or Luxembourg seem expensive to tourists, it’s because local salaries are significantly higher than ours,” notes Harri Kananojasenior statistician at Statistics Finland.

Moderate wage increases could curb inflation

According to Sakari Lahdemakihead of forecasts at the Labor Institute for Economic Research (Labore), moderate wage settlements may explain why inflation has been slower in Finland than in the rest of the euro zone.

During the 2008 financial crisis, wage growth remained strong here despite the stagnant economy. Since then, according to Lähdemäki, wage growth has “calmed down”.

“Time will tell how rising inflation will affect wage negotiations, but there are reasons to keep the line moderate, as in our view 2022 is an exceptional year for inflation,” Lähdemäki explained.