Price hike affects eating patterns: OP

With inflation in Finland at its highest level in decades, price rises are already clearly affecting consumption patterns, according to OP’s card data.

During the summer, sharp price rises in fuel and food led to reduced purchases compared to last year. However, in terms of overall consumption this indicates slowing growth rather than a steep fall.

Inflation rose to as much as 7.8 per cent in June, a level last seen in 1984. The rapid price rises in recent months are mainly due to Russia’s attack on Ukraine, which has caused increases in fuel and food prices in particular.

In June, energy prices rose to 40 per cent higher than at the same time last year, with fuel prices rising to 60 per cent higher than a year ago.

The price of food has also risen rapidly: in June 2022, food cost almost 11 per cent more than in June 2021. Higher prices have prompted people to prune their purchases.

“The supply of energy and food has been affected, raising prices and reducing the consumption of products. Card payments reveal a fall in consumption: for example, fuel and food purchases are clearly lower than a year ago,” said Tomi Kortela, Senior Economist at OP.

In June, higher fuel prices seem to have lowered fuel consumption by almost 10 per cent in comparison to last year.

Food consumption has fallen by around 5 per cent since last summer, when evaluated on the basis of fixed prices. Consumers can reduce their food spending by buying less but have probably chosen cheaper products instead.

“Consumers are behaving correctly by trying to reduce their consumption of much dearer products. Households must adapt their spending to changed circumstances. Of course, because the possibility to adapt consumption varies between households, inflation is having an uneven impact on them,” explained Kortela.

On the other hand, prices have clearly outstripped the fall in purchases, which means that much more money has been spent on fuel and food than last year.

”There are no signs of a sudden stop in consumption”

Despite the weak economic outlook, OP’s card data does not indicate a collapse in overall consumption.

However, the rapid post-pandemic rebound in consumption is over and inflation is eroding purchasing power, slowing down growth.

“There are no signs of a sudden stop in consumption, which is buoyed by the strong employment market, growth in the sum of wages and salaries, and accumulated household savings. For example, there was once again considerable growth in card payments for restaurant services and clothes, even when the effect of price rises is eliminated,” Kortela added.

The economic consequences of Russia’s invasion of Ukraine will be realised in the slightly longer term. OP forecasts that Finland’s economic growth will slow from this year’s level of 2 per cent to just 0.6 per cent next year.