Estonia needs to prepare for another expensive heating season

Euro bills and cents.
Euro bills and cents. Source: Karin Koppel/ERR

Director of the Estonian Institute of Economic Research (EKI) Marje Josing said that Estonia is heading into another hugely expensive heating season, which is the result of decades of work not done. Senior economist for Swedbank Liis Elmik believes Estonia should once again offer support to less fortunate families.

"It is work not done in Estonia over 15-20 years. We have failed to realize the importance of energy and power in development and its effect on people and families," Josing said.

"We have been incredibly busy, yet a lot of things remain undone. We have naively put our faith in the market and assured people that it will work, that we can just buy [electricity] and may not have to build wind farms ourselves. Today, we see that it is a pseudo-market from our point of view – without energy links, we cannot talk of a market," Josing said.

Josing said that it is pointless to blame people's energy consumption, while Estonia should have paid attention to different types of consumption. For example, she criticized cryptocurrency mining at high prices as increased consumption only works to drive them up. "Such things need to be thought through and addressed. They are not rapid solutions, and it is not the fault of the recent government – these things have been left undone over the past 15-20 years."

"We need to realize that we are heading into very tough times this fall and winter as far as energy is concerned. It will all happen again – people not being able to afford heating, firewood. We need to heat kindergartens and schools that means massive expenses for the public sector. We should take a look now at what can be done quickly," Josing suggested.

She said that Estonia should consider creating additional renewable energy capacity and curbing senseless consumption. "Energy-intensive industry is not a good fit for Estonia in this situation. Let us plan ahead instead of making decisions for a month or two."

Josing said that global food price advance has not stopped yet as cereals from Ukraine are cut off from the world market. "Cereals in turn affect the price of meat and dairy. While the price of pork has remained stable for some time, feed becoming more expensive will translate into price advance there too. Food price advance will continue but the major shock is behind us," she suggested.

Food prices are not what affect people the most, Josing suggested. "You can be flexible there – you can choose between going to the shop for some rice or ordering takeout sushi. But if you have an apartment and a small child and cannot afford to pay your heating bill, it is a problem that the person cannot simply choose not to have," she said.

There are still some fields untouched by price advance. For example, communications where prices have come down as a result of technological development and fierce competition.

Elmik: Inflation slowing because of high reference base

Swedbank economist Liis Elmik said that rapid inflation is forecast to continue in the coming months as are high energy prices.

"Looking at energy futures, no price alleviation is on the horizon for oil and gas. The price of gas is forecast to come down next spring, with oil also remaining expensive in the near future," Elmik sad.

The economist said that while inflation is forecast to slow toward the end of the year, this will mainly be down to the high reference base, the fact that rapid price advance started late last year.

"Energy prices will still be high next winter, which is something everyone should already be preparing for. Both in terms of heating and gas, somewhat lower prices in summer will head up again come winter," Elmik suggested.

Even should the European Central Bank hike interest rates, the effects will take time to manifest. "Looking at what makes up price advance in Estonia, I see no grounds to suggest any changes in the short term," Elmik said.

"All consumers should go over their expenses and save where possible to prepare for the coming winter," the economist suggested.

Elmik expects the government to support those who could have trouble coping. "In this situation, it makes the most sense to support households in the greatest difficulty. The government did it last heating season and will hopefully bring benefits back this season. Less fortunate families spend a lot more on energy, heating and food proportionally.


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Editor: Marcus Turovski

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