As the year progresses, forecasters are increasingly divided on the possibility of deflation in Finland. While Hypo predicts a potential temporary drop in inflation, Nordea and the OP group do not see deflation on the horizon.
According to Hypo, hidden deflation could affect the Finnish economy in the middle of the year. This occurs when loan interest is removed from the national consumer price index. However, other economists argue that factors such as a VAT increase and an electricity price index correction will boost inflation rather than cause deflation.
In particular, the upcoming VAT increase in September and the forecasted correction to the electricity price index are expected to counteract any potential for deflation in Finland. The latter is predicted to significantly increase inflation figures from autumn onwards, preventing negative inflation numbers.
Despite concerns about deflation during economic downturns, economists believe that inflationary effects will ultimately prevail due to factors like VAT increases and corrections to electricity prices indices. While occasional bouts of deflation may occur, their impact on economic growth can be detrimental as consumers tend to delay their purchases in anticipation of lower prices.
Forecasters’ differing opinions on deflation have led to some confusion within Finland’s financial community. However, it is clear that efforts are being made to mitigate any potential negative impacts and maintain stable economic growth throughout 2021.
