The central causes of Vaaderpass’s misfortune are a 240% increase in the price of unroasted green coffee and a 20% increase in the cost of the gas it uses to roast its imported beans. He also felt the need to give his staff a 10% pay rise in January despite the company’s lack of profits. This is the reality of life in Europe’s inflation hotspot. The latest figures, published on Thursday, showed Estonia’s annual inflation rate at a staggering 23.2% – the highest in the eurozone, well above the 8.9% average. Vaaderpass is inevitably part of the cycle. It has raised its price in supermarkets by 25% in the past eight months and fears it will have to do so again this year. A coffee in his cafe is now half a euro more expensive than it was, and Vaaderpass says he will also have to cut costs to “get back on track”. But they are not in the streets calling for the downfall of the government. There are no Estonians. Indeed, the latest poll shows the Reform party, the largest party in the ruling coalition, flying high with 34.4% of the vote, and their conservative rivals with 21.3%, six months before national elections. “Estonians are not that temperamental,” says Vaaderpass. “Quiet northerners. No emotions, you know. The funny thing is that when Covid hit and people couldn’t meet, it was a lucky day for Estonians. A day of celebration.” A woman picking nectarines at the Balti Jaama market in Tallinn. Photo: Hendrik Osula/The Guardian Part of the explanation for the lack of policy response may be that Estonia’s wages have been on a sharp upward trajectory for several years and the economy recovered well and quickly from the Covid pandemic, leading to labor shortages and higher wages. Voters are relatively relaxed about a temporary period of higher prices, it suggests. But there is also an understanding in Estonia, once part of the Soviet Union and containing a large Russian-speaking minority, that the war in Ukraine is the source of many of their problems, says Kaspar Oja, an economist at Estonia’s central bank. “In many countries people have taken to the streets even with lower inflation rates, but here people are quite calm,” he says. “Of course there are people who complain, but most people understand that the rise in energy prices is largely related to the war and understand what’s behind it.” There is, however, something that comes through, he admits. Estonia’s particular rate of inflation is also due to some peculiarities of its economy and possibly some exploitable government mistakes. Recent pension reforms have allowed people to dip into their nest eggs to spend now rather than later. A large percentage of consumers are on energy agreements linked to the market price rather than a fixed one. Archie Bland and Nimo Omer take you to the top stories and what they mean, free every weekday morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. And the papers are increasingly filled with complaints about how Estonian power producers, with relatively low production costs, are raking in high profits as they raise their prices in line with other regional producers on the Nord Pool exchange through which electricity is shared and set the prices. Estonia remains a relatively poor country within the EU, so energy and food prices make up a large part of consumer spending. Graphic “Lately there have been more complaints about electricity because they see that companies have taken advantage of it,” says Oja. “Consumers are paying more, but Estonia has power producers who benefit quite well and people are not happy about that. That is why the government plans to have a universal electricity service for small consumers, mainly households, to come into effect from October. Electricity companies should sell electricity according to the cost of production.” However, the media is beginning to see how little Prime Minister Kaya Callas, who has spoken of the need to maintain tight control over spending, has offered to moderate energy prices. Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics, says the latest inflation data shows that more interventionist governments, such as France’s, with the lowest annual inflation rate in the eurozone at 6.8%, and Italy’s (8 .4%) ), have done their best to shield their constituents from inflationary pressures. “The underlying issue is that the Estonians haven’t done much,” says Kirkegaard. “The French have been largely isolated because of nuclear production and haven’t had nearly the same transit. This is unlikely to last because if you look at future energy pricing in France, it is higher than most of the rest of Europe as the fear is that the river levels are so low that they will have to push the nuclear plants away. grid because they won’t have the water to cool them. “But the government has done a lot. They nationalized EDF [the country’s largest energy company] fully and will do what the government wants. They also increased public benefits for low-wage earners by up to 10% to basically try to ease the cost of living for low-income groups.” Baristas Elizabeth Liiv (left) and Anastasia Kralle at OA Coffee say they understand why prices are rising. Photo: Hendrik Osula/The Guardian The link between lower rates of inflation and intervention should not be lost on Boris Johnson’s successor in the UK, Kirkegaard suggests. According to data released by the Office for National Statistics this week, consumer price inflation in Britain jumped to 10.1% in July, the highest since February 1982, making it the first major economy to post double-digit price growth. “My view is that the UK in terms of fiscal transfers or direct government aid has not done much compared to the continent, certainly southern Europe and France, and the cost pass-through has been much greater,” he says. “I would say the UK is one of the least activist big governments.” It remains to be seen whether British voters will be as relaxed as those in Estonia. In central Tallinn, Lisa, 34, a psychotherapist who picks fruit at the Balti Jaama Turg covered market, says she buys less cosmetics and chooses used clothes instead of new, but is more concerned about the fate of Russians and Ukrainians. of the Estonian economy. “I feel sad about it rather than angry,” he says. Anastasia Kralle, 21, and Elizabeth Liiv, 17, who serve at OA Coffee, agree. “I’ve noticed that the price of eggs keeps going up every time I go to the grocery store,” laughs Kralle. “Yes, everything is more expensive, but I don’t want to be angry. I don’t blame anyone, we all know why this happens.”
