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Economist calls for 5% wage increases to tackle rising inflation rate

Eurozone inflation hit a record 8.1 percent in May compared to the same month last year.

The price of food, as well as energy, has increased rapidly since Russia's invasion of Ukraine, adding to runaway inflation. Image: Tiina Jutila / Yle

Consumer prices have started climbing as a result of Russia's invasion of Ukraine and coupled with inflation, the purchasing power of people in Finland is decreasing.

Eurozone inflation accelerated to a record 8.1 percent in May compared to the same month last year, and followed inflation spikes in March and April of 7.5 and 7.4 percent respectively.

Statistics Finland said on Friday that the real earnings — a wage metric that takes into account inflation — of employees fell by almost three percent between January and March this year, marking the steepest collapse in real earnings so far this century.

Patrizio Lainà, chief economist at trade union confederation STTK, told Yle he believes that wages need to rise by roughly five percent this year to keep wage earners' purchasing power on a par with the rising rate of inflation.

Lainà based this figure on the inflation forecast for the year, although there is substantial uncertainty due to Russia's ongoing war in Ukraine.

Trade unions in favour, business delegation wary

Wage increases have already taken effect in many sectors this year. However, Lainà called for additional wage increases to buffer the purchasing power of people in Finland.

"The situation is reasonably good for companies. They have been able to raise prices and secure their own margins, and the economy is expected to grow," Lainà explained, but contrasted this outlook with the tough situation workers find themselves in.

"For workers, the situation is rather bad, unless wages are inflated with additional increases. At the moment, however, there have been very few," Lainà said.

He further noted that inflation is largely a result of the strain caused by war and high food and energy prices, and not a result of domestic stimulus.

Sanna Kurronen, an economist at the Confederation of Finnish Industries (EVA), is not convinced that wage increases will alleviate inflation woes. Companies' costs would rise faster than before, and attempts would be made to pass these costs on to prices.

Kurronen hoped that high inflation would be limited mainly this year.

"Inflation is forecast to slow down next year. There are ways to alleviate the situation for very low income earners. The government has already decided on an additional inflation control for social benefits," Kurronen told Yle.

She added that although purchasing power is diminishing, consumption will continue to stay the same, and noted that people have had the time and opportunity to save during the Covid pandemic.