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Inflation ticks up following Covid crisis lull

Finland's annual inflation rate increased to one percent after being held steady by the coronavirus' economic impact.

Olutpulloja kylmäkaapissa
Thanks to new taxation, alcohol and tobacco prices are rising the fastest in Finland. Image: Tiina Jutila / Yle

The rate of inflation has begun to accelerate after remaining at a low level for much of 2020.

According to Eurostat, Finland's annual inflation rate rose to one percent in January, up from 0.2 percent in December.

A smaller rise was seen across the Eurozone, which saw an average inflation rate of 0.9 percent in January.

Inflation is the rate at which the price of goods and services increases, usually expressed as a percentage increase or decrease over time.

Finland's consumer price hike was influenced by tax increases that took effect at the beginning of this year, which increased the cost of things like alcohol, tobacco and transportation. Meanwhile, the price of detached housing and long-distance train tickets also rose.

Although a one percent inflation rate seems relatively small, it represents a clear change compared to the weak – or even negative – rates seen in recent months, widely blamed on the economic impact of the global coronavirus crisis.

Economists are closely following inflation trends, said Tiina Helenius, chief economist at pension firm Elo.

She said January's uptick could be partially explained by technical issues, saying that inflation measurement itself had undergone a change as a result of the crisis.

"An important thing to keep in mind is the rise in prices of raw materials and energy resources, like oil. These factors are starting to be seen [in consumer prices]. I think it will be very evident in inflation this year and that inflation will accelerate," Helenius explained.

Story continues after photo.

Tiina Helenius, pääekonomisti, eläkeyhtiö Elo ja Risto Murto, toimitusjohtaja, työeläkevakuutusyhtiö Varma
Tiina Helenius, chief economist at pension firm Elo (on left) and CEO of pension firm Varma, Risto Murto. Image: Sasha Silvala / Yle, Pekka Tynell / Yle

Meanwhile, a global shortage of sea container transport has prompted cargo prices to triple in some cases.

Similarly, the Reuters news agency reported an ongoing shortage of semiconductors which are needed to produce items like vehicles, computers and smartphones, among others. The shortage was exacerbated as people purchased more consumer electronics when forced to stay at home by the pandemic.

According to an official at Statistics Finland, Kristiina Nieminen, conclusions regarding whether last month's inflation growth was permanent cannot be reached for another month.

In a blog post for the number-crunching agency, Nieminen wrote that it was more difficult to measure price fluctuations during the crisis than under normal circumstances.

What happens post-coronavirus?

The CEO of pension firm Varma, Risto Murto, told Yle that January's inflation growth was due to technical issues, and was seasonal and non-recurring. What's most important, he said, is how soon the global pandemic eases.

"Depending on the coronavirus situation, there will be sudden spikes of consumption. Relative price increases may occur in various sectors, but it will take more to cause a major inflation problem across the Eurozone," Murto said.

January's inflation rate figures revealed that housing, energy and alcohol purchases were taking a bigger share of consumers' money. Meanwhile, spending on hotels, restaurants and tourism decreased sharply.

Sales of high-heeled shoes, scarves as well as costume jewellery have also plummeted to the point that the items were not included in Statistics Finland's so-called shopping basket, used to measure inflation for the month of January.

However, once the world recovers from the coronavirus crisis, prices could change rapidly in either direction.

Helenius noted that if household incomes, like salaries, are not adjusted for inflation then consumers' purchasing power will be eroded.

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