The purchasing power of Finns was the weakest or at most average in the EU when the single currency, the euro, was launched more than 20 years ago. Since then, prices have risen less than elsewhere and relative purchasing power has improved.
The monthly work only produces weaker purchasing power in Spain than in Finland, Statistics Finland’s Tietika magazine reported at the beginning of 1999.
However, the newspaper pointed out that no data were available for Greece and Portugal. They would probably have been the stern of the comparison.
In this millennium, the purchasing power of Finns in relation to other Europeans has improved. Wage levels have risen, and at the same time inflation has been slower than elsewhere.
Finland’s relative position may improve even more: although inflation is also hitting a record high, it is hitting even harder elsewhere. The differences between countries are now considerable.
This means that elsewhere, the purchasing power of citizens is declining faster than we have. Purchasing power means, in effect, the standard of living: how much services and goods are acquired in each country on average income.
Can the situation still change so that Finland will soon no longer be an expensive country in European terms? Depending on how long such an inflation period lasts, the Bank of Finland is responsible.
– I do not think that a period when inflation rates vary greatly between countries will eventually last so long, Bank of Finland economist Aino Silvo is missing.
But Finland may still overtake Germany, for example, in living standards and purchasing power measures this year, where prices are rising much faster. In terms of the living standards of its citizens, Germany has been only a notch ahead of 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.
Everyone’s purchasing power is declining
Although Finland’s relative position is improving, it is good to remember that the purchasing power of our citizens is rapidly declining as inflation slows down, Silvo emphasizes.
– The position of everyone may deteriorate, but some less than others, and Finland may be in the best of it if inflation does not accelerate as much in Finland as elsewhere, Silvo explains.
He thinks we need to look at relative living standards.
– It is not appropriate to look at price levels per se, but at differences in purchasing power, ie what a household can buy in each country with its income, Silvo says.
Statistics Finland agrees.
– If Switzerland, Norway or Luxembourg feel expensive for tourists, then the salaries of locals are clearly higher than ours, expert Harri Kananoja Statistics Finland says.
Is Estonia almost more expensive than Finland?
In Estonia, for example, inflation has been so high since the end of last year that it has caught up with Finland in price levels by leaps and bounds.
In March, prices in Estonia had risen by almost 15 per cent year-on-year, while in Finland they rose by “only” 5.8 per cent over the same period.
Even before the current acceleration in inflation, Estonian prices rose sharply. Read more about price leveling in the euro area here.
If it continues for a long time, inflation may become a big problem for Estonia, but also for Latvia and Lithuania, for example. They already have time to catch up with the West in purchasing power.
– If prices in Estonia rise much faster than in Finland, it will eat up the purchasing power of Estonians and at the same time erode their living standards, Silvo says.
Moderate wage settlements have kept prices in check
One explanation for slower inflation in the rest of the euro area in Finland is the Laboratory Forecast Manager Sakari Lähdemäki be moderate wage settlements.
During the 2008 financial crisis, wage growth continued to be strong despite the “stagnation” of the economy. Then, according to Lähdemäki, wage growth moderated and “calmed down”.
– Time will tell how to react to the accelerated inflation in the wage negotiations, but there are reasons to continue the moderate line, because in our opinion, this year 2022 is an exceptional year for inflation.
During more than 20 years of euro membership, Finland’s standard of living has improved. Lähdemäki emphasizes that one cannot know what would have happened without the single currency.
– There are certain reasons and indications that a stable currency and a common trade area as a whole have benefited Finland and Finns due to the general growth in productivity and thus a reasonable development in earnings levels, Lähdemäki says.
At the end of the year, however, Finland may catch up with Central Europe in terms of inflation, as we will have to replace imports from Russia more than the average EU country. Replacement imports are likely to be more expensive than pre-war imports from Russia.
You can discuss the topic until 23:00 on Tuesday evening.