CEO of Swedbank Estonia Olavi Lepp said that interest rate hikes could slow down in spring. The banker said that savings are highly concentrated, meaning that some have plenty, while others have none, which is why looking at average consumption is pretty much useless.
Lepp said that it pays to keep in mind that over 20 percent inflation is measured year-over-year, meaning that prices do not go up by that much every month. "It is a separate phenomenon that inflation has not been as fast elsewhere in Europe."
On the one hand, we could argue that Estonia is small and inflation hits here first. However, once the Estonian economy stabilizes, interest rates laid down in Europe will continue to affect the business atmosphere. "In other words, we will still be getting the drug when we have already recovered," he said.
Euribor will continue to climb in the wake of base rates. "We need to monitor what is coming out of the ECB. They have suggested the next hike will happen a week from now on Thursday. We will see whether it will be by 0.5 or 0.75 points," Lepp said. "Most market participants believe we will see the base rate at 3.5 percent before it starts coming down," the Swedbank executive offered.
Estonians have rather not changed their consumer habits in the conditions of rapid inflation, relying on savings instead. Lepp said this can be seen from different angles. "Households' savings totaled around €8 billion in early 2020, which had grown to €9 billion by year's end. By the end of last year, this had grown to €10 billion to which pension reform withdrawals added another €1 billion. We are on €11 billion today, meaning that savings have not grown since then. That said, savings are highly concentrated, meaning that some have plenty, while others have none, which is why looking at the average does not reflect the situation accurately."
Lepp believes price advance should slow down once winter ends. "Signs suggest that because the energy deficit is growing less, at least in the case of some energy sources, we could be in for alleviation. Others suggest diesel prices could soar in February provided no new political agreements will be made. Therefore, it will be a difficult winter still, while we might be able to breathe a little more easily after that," Lepp remarked.
Lepp said that use of credit cards is up slightly, while total [credit and debit] card turnover has grown just 8 percent compared to last year. "We are not seeing those 20 percent [inflation] in the shops. The effects have not been as drastic, while we might be getting fewer products for our money," he said.
"It seems people are coping right now. Traveling is on the rise, but we must keep in mind that some are spending, while others are trying to make ends meet. The government must keep an eye on making sure everyone copes," Lepp said.
Editor: Barbaraja Oja, Marcus Turovski