The rapid rise in food prices has begun to slow, but at the same time housing is becoming costlier. That's changing the demographics of who is suffering the most from inflation in Finland.
The trends mean that inflation is now especially tough on young families who have recently bought apartments.
Jari Järvinen, chief economist at the LähiTapiola finance group, pinpoints the latest targets of the inflation burden.
"It's basically young families with children, who have the most housing debt. Those aged 25-34 have the most housing debt," he told Yle.
Housing makes up the largest share of typical household consumption in Finland, about 30 percent. Food is the second largest item of expenditure, accounting for more than 12 percent of consumption expenditure on average.
Housing costs have been pushed up by the rise in interest rates on home loans. A year ago, the average interest rate on new home loans was less than one percent, but now it is over four percent. In total, the interest paid on housing loans has risen by a whopping 256 percent in one year, according to Statistics Finland.
For many people in debt, the rise in interest rates is a heavy blow. LähiTapiola's Järvinen points to an old rule of thumb, according to which 20 percent of all debtors carry 80 percent of the total debt.
The increase in interest rates has a significant impact in accelerating inflation.
According to the central statistics office, interest accounts for almost two percentage points out of the general inflation rate of 6.8 percent. Even food has become less important, making up less than one and a half percentage points of overall inflation.
Little flexibility in housing loans
Housing loans are also more difficult in that consumers can't mitigate them by choosing cheaper products, as they can when it comes to food, for instance. Some banks allow debtors to postpone a certain number of repayments annually – offering temporary relief but eventually increasing the total cost of the loan.
Rents, on the other hand, are moving in another direction. Despite the sharp rise in interest rates, rents have risen relatively little. Last month, rents rose by less than two percent, and that rise may even become a decline soon.
Property owners must consider residents' ability to pay their rents, which is being eroded by the high cost of food and energy. Järvinen said he has observed "micro-level signals" that rents can be negotiated.
"If demand disappears, rents must be brought down. There are already signs that rents can be negotiated and there is room for haggling," he said.
Food still pricey, but the increase is slowing
According to Statistics Finland's latest data, food prices rose by 11 percent last month, down from more than 16 percent a month earlier.
Prices for some food items have been falling, for example coffee and salad items. For many products though, sharp price increases continue. The cost of sugar, flour and other grain products was up by more than a quarter since last year.
The rapid increase in the price of food began after Russia attacked Ukraine in February 2022. Therefore, relative year-on-year price increases are now moderating as last year's monthly comparison base rises.
Consumers opt for cheaper foreign goods
Due to sticker shock while shopping, consumers have naturally started to look for more affordable alternatives – which has meant an increase in sales of foreign products.
"The increase in food prices changed consumer behaviour significantly last year, as the number of price-sensitive consumers increased. Consumers in Finland still want to buy high-quality domestic food, but last year this principle faded somewhat," said Bate Ismail, economist at the Finnish Food and Drink Industries’ Federation, in a report published on Monday.
According to the association, the production volume of the domestic food industry is declining. That situation is unlikely to change decisively this year, as the purchasing power of households will probably continue to weaken despite recent wage increases.