Roundup: Record inflation slows Sweden’s economy

Roundup: Record inflation slows Sweden's economy

STOCKHOLM, July 28 (Xinhua) — Already at its 30-year high, inflation continues to hit new records in Sweden as food, electricity and fuel prices have soared in recent months, partly due to the conflict in Ukraine and sanctions against Russia.

Data recently published by Statistics Sweden showed that the country’s 12-month inflation reached 8.5 percent in June, the highest since December 1991. This figure, above market expectations, followed increases in statistics: 6.1 percent in March, 6.4 percent in April and 7.2 percent in May.

“The prices of food, electricity and fuel rose and affected inflation the most,” says Sofie Ohman, price statistician at Statistics Norway, about the rate of inflation in June in a press release.

The data in June showed that the prices of food, electricity and fuel were increased by 11.2 per cent, 39.8 per cent and 54.2 per cent respectively from the year before. Basic consumer goods such as meat, milk, cheese, eggs, coffee and bread contributed the most to inflation, with the price of coffee alone rising by almost 50 percent year-on-year.

It is more expensive for Swedes to own or rent a home, as the prices of properties, rents and electricity continue to soar. Commuting costs are also rising, driven by skyrocketing fuel and vehicle prices.

Likewise, the prices of furniture, household appliances, catering and hospitality, culture and entertainment and personal care have increased.

Kristina Lagerström, economic commentator on a Swedish TV, said that inflation in June was “above the market’s expectations”, the effects of the record high inflation in recent months were severe and people can feel the effects of high prices.

Many Swedish households are now forced to reconsider their priorities when they can no longer afford everything they need, another economist said on condition of anonymity.

The Tenants’ Association fears that landlords will demand rent increases “regardless of decades” before the next round of negotiations, says Martin Hofverberg, chief economist at the association, to Sveriges Television.

He said the union cannot agree to offset all the cost increases requested by landlords, because tenants’ costs have already risen and further drastic rent increases would be unacceptable. “But we have to prepare for the worst.”

To curb high inflation, the Riksbank has since April ended the negative and zero interest rate policy that applied for more than seven years and raised the key interest rate (formerly known as the repo rate) from zero to 0.25 percent, and said it would gradually rise to a level just below 2 percent within the next three years.

However, the record inflation rate soon forced the central bank to intervene again. From July 6, the key interest rate was raised to 0.75 percent, the largest interest rate increase in Sweden this year. That dramatically shortened the timeframe for raising the key rate to around 2 percent by early next year.

The central bank said interest rate hikes are necessary to address the negative impact of inflation on the national economy, as uncertainties in global supply chains, geopolitics and further price increases will continue to push up inflation.

Just a week before the 50 basis point increase, the Norwegian Economic Institute (KI) warned that the country is facing an economic downturn due to high inflation.

It said economic growth will be about 1.9 percent this year and 1.2 percent in 2023, down sharply from the 3.3 percent and 2.1 percent it forecast in March, when the agency believed an economic boom , albeit moderate, would begin towards the end of the year.

The economic institute said the slowdown is mainly due to the worsening economic situation of Swedish households, the result of “a perfect storm” that started with expansionary monetary policy to cushion the negative economic effects of the covid-19 pandemic, followed by supply and delivery problems when production picked up again after the lockdown and was further exacerbated by the conflict between Russia and Ukraine.

Swedish consumers are also pessimistic about their financial future, says KI’s report. Last year, confidence among Swedish households was above 110 (baseline 100), while this year confidence shrank to 70, the lowest ever.

Johan Lof, senior economist at Handelsbanken, a Swedish bank, said high inflation has a big impact on Swedes’ lives. Consumers are looking for promotional prices, mortgages are more expensive and economists see increasing pressure on the central bank to act again.

Lof said it is increasingly likely that the central bank will raise its key interest rate by another 75 basis points in September.

Still, KI has warned that the central bank’s monetary policy tightening will face a “difficult balancing act” between taming inflation and avoiding too much of a slowdown.

Source: sn.dk

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