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Tuesday 19.06.2018 | Name days: Nils, Viktors
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Economist about inflation in Estonia: people have a tendency to exaggerate the price rise

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Ever since the introduction of Euro in Estonia, the people perceived inflation kept increasing, i.e., the people’s opinion (its proportion gathered through sociological surveys) on how large the price rise was. Actual inflation (after being calculated at sales outlets) was notable lower, says Bank of Latvia Economist Ramune Rimgailaite.

She says that this situation is not unique only to Estonia. The situation was similar in other countries that introduced Euro in the past. «The majority of reasons are, most likely, within human psychology. No one likes it when prices go up. Maybe that is why, price tag evaluation at general stores gets most of our attention and keep the general sense of price rise in our mind for longer than any cases when prices either decline or do not change at all,»- the economist notes.

It is also said, as well as confirmed by multiple surveys – people have a tendency to exaggerate price rise. For example, Italian scientists came to this conclusion after performing surveys in relation to the residents’ opinion about the introduction of Euro, and then comparing their survey results with prices registered at places of trade or service offer. When being asked to compare prices before and after the introduction of Euro, people stated that price levels in Italian lira were much lower than actual prices in Euro almost in all cases.

«This situation can be described by the phrase «grass was much greener when we were growing up». The price level that existed for a very long time actually remains in the memory of the people. This creates the impression that prices rose because of the introduction of Euro. In reality, prices rose not because of Euro, but because of the inflation before the Euro,»- Rimgailaite says.

The economist says that the increase of inflation in Estonia – just like Latvia in 2011 – was mostly due to the increase of global prices on food and energy resources. In 2011, energy prices increased by 8.5% in Estonia; this also applies to food products (9.5% increase). And annual inflation, except energy, food, alcohol and tobacco products price rise, was 2.9%, which is a moderate price increase.

Rimgailaite also cites the Estonian banker – Indreks Neivelta – , who said that the crisis is easier overcome not by the strongest, but by those who adapt to new situations more easily. «Estonia, Latvia and Lithuania are of those EU countries the economy of which adapted the best. Now, by continuing reasonable management of our budgets and move towards meeting all Maastricht criteria and the subsequent introduction of Euro, we will be in a much better situation for any possible future crisis,»- the economist believes.

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