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Cost of living swells more for low income Finns

Consumer prices have risen more for poor people than for high income households.

Hernekeittoa ja näkkileipää.
Food prices have risen rapidly. Image: Ismo Pekkarinen / AOP

Relative consumer prices have risen more for low income households than for high income earners, according to an article written by researcher and ex-Statistics Finland actuary Olli Savela.

In his piece for the institution's Tieto & Trendit magazine Savela finds that prices are growing about half a percent faster for consumers on the poverty line in the 21st century. The pace seems small, but over 17 years that amounts to a 7 percent drift in the official index of consumer prices.

The main reason Savela cites for the unequal footing is that differently earning people consume differently, too. Low income earners are more likely to rent their homes instead of owning them and use more money on groceries, the prices for which have risen the fastest. Public transport prices have also grown quickly.

Savela made his calculations based on a consumption rate that allows for so-called reasonable living, meaning the minimum amount that a person can healthily sustain themselves with by acquiring products and services.

This "reasonable minimum" essentially means enough income to scrape the poverty line, which in a one-adult household is 1,180 euros.

"Almost every year real prices have risen faster for those in poverty, but the increase has been especially noticeable after the financial crisis of 2008."

Inflation-based benefits lag behind

Inflation describes the way prices rise, but average inflation cannot account for the discrepancies between different earning brackets.

Nordea private household economist Olli Kärkkäinen says that the widening gap between rich and poor may slow down in the near future, if interest rates rise and home ownership costs with them.

The reason the difference between low income price shifts and official inflation, Kärkkäinen says, is that the social benefits that low income or jobless earners receive are increased based on average inflation. Thus the rate at which such benefits grow may well lag behind the actual costs of living.

Kärkkäinen says this is a serious problem when looking at benefits such as student financial aid.

"If this continues in the long run it means that the real buying power of these benefits will suffer."

Average inflation has been very low in Finland in recent years, at less than one percent in 2017.

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