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Spending or saving - the latest trends


There’s no getting around the fact that Europe is in a state of turmoil. Having emerged from the COVID-19 pandemic, the continent has been plunged straight into the Russia-Ukraine conflict with virtually no time for economic recovery.

The impacts of the war are proving to be far-reaching, hitting energy and food supplies hard and sending prices higher and higher.

Earlier this year, price increases across the eurozone hit a 13 year high. The inflation the market is experiencing is making headlines, and there’s no doubt that it has been exacerbated by the Ukraine-Russia conflict. While the European economy is faring better than that of the United Kingdom and the United States, the continent is closer to the Russia-Ukraine conflict and therefore, more heavily impacted and reliant on its resolution to progress with momentum.

This article explains inflation in Europe, how it’s measured and why it matters, and the latest trends in saving and spending across the continent, with a zoomed-in focus on the Baltics: Latvia, Lithuania and Estonia.

How is inflation measured in Europe?

In Europe, inflation is measured using the Harmonised Index of Consumer Prices or HICP, which calculates the percentage change in the price of a basket of goods and services consumed by households. It is considered ‘harmonised’ because this methodology is followed by all countries in the European Union.

Simply put, the overall inflation rate for the Euro area is an average of the inflation rates of each individual country in the European Union.

This means the methodology takes into account the fact that inflation rates vary across European countries, and sometimes quite significantly. The main reason for this is that the prices of products differ from country to country, and so do the spending habits of the people living there.

For example, the rate of inflation in Lithuania was 22.1% in October 2022, while Germany reflected 11.6% during the same period. A closer look at the categories shows that for food and non-alcoholic beverages, Lithuania recorded an inflation rate of 32.6%, and for the same category, Germany reflected 18.9%.

The HICP takes into account how much inflation is affecting the spending habits of European citizens, but it’s really important to understand how your savings are impacted during times of economic uncertainty. They might not be as safe as you think.

How does inflation affect your savings?

When prices increase and news reports warn against rising inflation, it can be tempting to cut spending and tuck your hard earned money away in a savings account. However, if the inflation rate is higher than the rate of interest earned on cash in that savings account, then the money will be losing its value.

Generally speaking, the way to avoid this (other than finding a savings account with a rewarding interest rate) is to start looking for investment options that suit your personal circumstances.

Baltics: the hardest hit countries in the eurozone

The Baltic countries have been the hardest hit by inflation, as energy and food prices continue to soar and business slows. What are the reactions from consumers in Estonia, Latvia and Lithuania, and are they financially prepared for the future?


Estonia is experiencing the highest levels of inflation in the eurozone, at 22.4%. At the same time last year, the inflation rate was just 6.8%. This has been sparked by skyrocketing energy prices, unavoidable costs associated with food production and faster increases in wage costs

One of Estonia's biggest supermarket chains, Selver, reported fluctuating prices and obvious changes to customer shopping behaviors across its 74 stores. Demand for premium products has dropped, and customers are snapping up items that are reduced, discounted or on sale. As the rising production costs are passed onto consumers, Estonians appear to be limiting themselves to buying only what they need until the situation becomes more stable.


The majority of Latvians do not have savings to dip into when times are tough. A third of the population says they could survive up to two months on their savings, while half say the money in their savings account wouldn’t last a month.

According to the Bank of Latvia, savings are increasing: Latvians understand the importance of saving their money, and one in every five people says that inflation effects have prevented them from making any savings at all. Those who do have an amount of money in a bank account are not protected from difficulties in future as rising inflation eats away at their hard-earned finances.


Lithuania’s leading food retailer, Maxima, paints a picture similar to that of Selver in Estonia. A survey conducted by the chain of stores revealed that more than 80% of customers demonstrated a preference for discounted food products, and 60% changed their shopping lists if they found products at lower prices.

The Energy Ministry of the country has recommended employers to impose work-from-home arrangements on Mondays and Fridays, in order to reduce the pressures on energy supplies and associated spending. Employees, however, are pushing back on the suggested arrangement as working from official premises personally saves them money on heating and electricity.

What will happen next?

According to PriceWaterhouseCoopers and the European Commission, inflation in the Eurozone is expected to ease off to 4% in 2023. While that’s just around the corner, there are still periods of difficulty ahead.

What should we be doing with our money?

According to the Organisation for Economic Co-operation and Development (OECD), a recession will be narrowly avoided by Europe, but the energy crisis and slowed business activity will have almost just as damaging an impact.

During these times, holding money in a savings account is no longer the smartest or safest decision: inflation will diminish the value rapidly. Looking for investment options in the stock market is one way to benefit from the market downturn (many investors look to purchase during a dip, as they will profit from the inevitable rally).

Another option for protecting your money is by putting into bricks and mortar. Purchasing property - a home or piece of commercial real estate - is a way of securing your future with a tangible asset that is likely to appreciate over time.

Lastly, keep up to date with the movements of the market, and governmental decisions that are designed to assist populations during times of financial difficulty. Staying informed throughout periods of uncertainty is key to being able to make smart financial decisions when the time is right.


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