Mikk Salu’s analysis ⟩ Trump also showed Estonia that people hate inflation

Inflation. Image is illustrative. Photo: Mihkel Maripuu

«I just hate inflation,» said Annely Akkermann, head of the Riigikogu finance committee, in an interview with Postimees a few months ago. The topic was so important to Akkermann that she repeated «I hate inflation» several times.

After Donald Trump's victory in the US presidential election had become clear, Washington Post columnist Megan McArdle wrote: «The clearest message of this election is that people really, really, really hate inflation.» A few days later, this has already become a widespread belief. There were various reasons for Trump's victory, but almost all who explain it point to rising prices. People just hate inflation.

This is not breaking news in itself. According to polls, it was already known before the elections that Americans care most about four topics: inflation/economy, immigration, abortion and the future of democracy. Voters trusted Trump more on the first two issues and Kamala Harris on the last two issues. The election results validated the importance of inflation concerns.

Although the United States is far from Estonia, parallels can still be drawn. For the last 15 or even 20 years, the topic of price increases has not been important to the politicians of Estonia or other countries. They could enjoy a long period when interest rates were low, inflation was low, countries could borrow easily and cheaply, run the budget into deficit, and there were no negative consequences.

There was no need to deal with price hike fears and stress. Politicians did not deal with it. The voters did not deal with it. There were no promises related to it in election campaigns or party programs. At least now – certainly also against the background of the US election results – it can be said that the issue of price increases has returned to the big election stage with a bang. Kaido Keerma, an analyst at the SALK foundation, pointed out on social media a few days ago that all rulers around the world have actually lost support. It doesn't matter if you are on the right or on the left, if you happen to be in power now, the voters will be grumpy with you. And inflation is a big factor in that.

The trick with price increases is that people think and remember differently than how economists or politicians talk about it. For example, in the US, the big price increase has actually already passed, and Joe Biden and Harris also referred to this in their campaigns. But people do not think about price increases in such a way that if there was no price increase last month, then now everything is fine. Rather, people think that this cup of coffee cost two dollars for many years, but now it costs three. It will take time for people to accept that three dollars is the new normal. Even if rapid inflation slows down, old prices will still be remembered for a while, and getting used to new ones will not come quickly.

One can be sure that more than one party will include a promise to reduce the VAT on food in the next election program.

Even if the rise in prices is accompanied by a rise in wages, and macro statistics show – prices rose and wages rose – that everything is even, this may not be the case. Finance Minister Jürgen Ligi has used the argument a few times that, see, salaries have also increased, so there is no reason to complain. Possibly, but this is where Ligi's blind spot arising from his position comes into play. While the salary increase is automatic in the office of a minister or a member of the Riigikogu, it is established by law and the parties involved know what will happen, then in the private sector nothing happens out of nowhere or automatically.

Getting a raise in the private sector can be a long and uncomfortable process. It is preceded by fears and complaints, worrying about what will happen, whether it will increase or not, whether you have to ask for more and how much more, and what if they say no. And even if everything is finally over and a higher figure is written into the employment contract, dissatisfaction can still persist. In short, for many, this is an uncomfortable and stressful process that creates a bad mood. Not to mention that even if the statistics show a general increase in wages, it is definitely not the same for all people and segments. Finally, the bad mood is two-fold – stress from price increases and uncomfortable salary negotiations.

The coalition agreement of the Reform Party, Estonia 200 and the Social Democrats will bring new tax increases and thereby push the momentum for a new price increase. While the rapid inflation that came in the wave of the COVID-19 boom has also gradually subsided in Estonia, the momentum of the price increase is now being boosted a little more again.

Right now, we don't know exactly which direction the prices will move in the next two years. Tax hikes decided by the coalition are pushing up prices. Donald Trump has said he plans to flood the world with cheap oil. If this were to happen, it would also bring relief to Estonian prices. But what will the electricity price do in Estonia? Perhaps the lesson for us in electricity prices is that, in addition to an increase, many consumers also hate unpredictability. We remember the debates from the time of Kaja Kallas on whether and how Eesti Energia should offer a fixed electricity price. In retrospect, one can say that, all in all, the market price ended up being better, that the solution was clumsy and what else, but on the other hand, if the unpredictability of prices causes anxiety for many people, then it is something that must be taken into account (also politically).

It is not known how much price rise concerns will affect the 2027 Riigikogu election campaign. How acute the problem will be then and how exactly people will affect it. But in the wake of Trump's election victory, it can be expected that politicians who want to achieve a strong result in the election will now take issues related to inflation more seriously.

Stories told in the meantime about how the state budget deficit does not matter and how there is no need to worry about the debt of the government sector sound less convincing. Tax increases that lead to price increases are bound to be more unpopular. And in contrast, lowering VAT as an election slogan sounds more appealing. One can be sure that more than one party will include a promise to reduce the VAT on food in the next election program. Even if the details are still open, all Estonian parties will likely start puzzling over and thinking about their promises in the context of prices. Because people hate inflation.