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INCOME

Swedes suffer drop in disposable income

The majority of Swedes will experience a drop in their disposable incomes this year in comparison to 2009, with higher mortgage costs to blame, according to a new report published by Swedish bank Swedbank.

Published: 9 March 2011 15:10 CET
Swedes suffer drop in disposable income

Households with high mortgages, and pensioners, are the groups feeling the biggest pinch over the past year, according to the bank’s estimates.

Mortgages are not the only item pushing up household costs, the bank observed, with bills for electricity, telecom, food, clothing and newspapers all having risen over the past year.

There is however some respite in the form of decreased union and employment insurance scheme membership costs.

Families with two children living in rented accommodation are those who have experienced the best development in their disposable incomes over the past few years, with a increase recorded every year between 1998 and 2010.

“The biggest climb was in 2002 thanks to substantial pay increases and the introduction of the cap on preschool costs,” Maria Ahrengart at Swedbank said in a statement.

The government’s introduction and expansion of an in-work tax credit has also improved the situation of many people in recent years.

Despite the downturn this year, child families in rented accommodation are those with the most money left over once necessary expenses have been paid.

The financial situation of families who own their homes varies more significantly from year to year, as most of whom service large mortgages. This is also the group which will suffer the greatest drop in disposable income in 2001, due to interest rate rises.

Sweden’s Riksbank is expected to raise the base repo rate by one percentage point in 2010 and if mortgage rates follow accordingly this would equate to a rise in monthly mortgage costs by around 580 kronor ($91) after tax per million kronor in mortgage loans.

Single parents and pensioners are two groups which have fallen behind in the development of disposable income over the past year.

“The support which society gives to single parents is not linked to price and income growth. The child allowance was raised on July 1st last year, but both maintenance and housing benefit erode in value each year,” Ahrengart explained.

Retired couples who suffered a drop in their pensions last year, stand in line for further falls this year.

“Over the past two years they have lost nearly 800 kronor a month. That is a lot of money,” Ahrengart said.

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ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Published: 16 March 2023 16:20 CET
Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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