There is disagreement among economists on the possibility of deflation in Finland this year. While Hypo predicts a temporary drop in inflation that may lead to momentary deflation, other forecasters such as Nordea and the OP group believe it is unlikely to happen. According to Hypo’s analysis, hidden deflation may occur in the fall due to the diminishing effect of loan interest rates on the national consumer price index.
However, Nordea and the OP group argue that two factors will likely accelerate inflation in Finland. The increase in value-added tax, set to take effect in September, as well as the correction made to the electricity price index by Statistics Finland, are expected to boost inflation figures. The correction made to the electricity price index will impact inflation until July of the current year, after which it will contribute to increased inflation numbers in the fall.
Despite potential decreases in loan interest rates, Nordea estimates that these factors will outweigh this factor. They project that these two factors alone will contribute significantly to increased inflation, making it unlikely for Finland to experience deflation. Deflation is a rare occurrence, typically associated with economic downturns, and is considered harmful for economic growth as it can lead to consumer spending postponement and a freeze in consumer durable markets.