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Retail sales robust despite rising food and petrol prices

Higher interest rates and rising prices for food and fuel put pressure on Sweden’s building materials and electronics sales in June, but the overall retail sales picture remains strong, according to new statistics.

Published: 29 July 2008 21:25 CEST

Sales increased by 2.3 percent in June compared with the same month last year, as measured by current prices, according to figures released by Statistics Sweden and the Swedish Research Institute of Trade (HUI).

Higher interest rates and sky-high fuel prices have caused Swedish households to be more careful since the start of the year.

And run away food prices have also reduced families’ purchasing power, a phenomenon confirmed by sales results in the the building materials and electronics retail trade.

“June was a somewhat weaker month than what we’ve seen so far this year and that is seen in particular in the show and jewelry retail sales. Building materials and hardware store sales, which last year increased by around 10 percent, went up only 0.1 percent in June,” said Jessica Lindblom, a retail sales analyst at HUI, to the TT news agency.

“But looking at the retail sales figures overall so far this year, we have an increase of 5.2 percent and that is still a relatively strong growth rate,” she added.

Food prices rose 6.8 percent in June, which caused general grocery store sales to rise by 3.8 percent.

“We’re still spending the same amount of money on food, but we’re now getting less food for the money,” said Lindblom.

Overall, June retail sales figures handily beat analysts’ expectations.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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