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MONEY

Economists: Inflation in Sweden hasn’t peaked yet

The latest US inflation figures were not as high as most experts expected. However, when it comes to Sweden, consumers will have to wait a while longer before the inflation becomes more moderate, Nordea's chief analyst Torbjörn Isaksson believes.

Empty wallet
Pictured: an empty wallet (Photo by Emil Kalibradov / Unsplash)

In both the US and the rest of the world, the stock markets rose on Thursday over the US inflation figures. Inflation unexpectedly fell to “just” 7.7 percent, which was lower than the 7.9 percent that financial markets expected.

“There are reasons to believe this is now a turning point,” Isaksson says. However, Sweden is not there yet. The Swedish inflation figures for October will be released on Tuesday.

“It will take a while longer before Swedish inflation becomes more moderate. The US is ahead of us, and it has also been a different situation there,” Alexandra Stråberg, chief economist at Länsförsäkringar, a Swedish group of customer-owned insurance companies, says.

Electricity prices are going down

In October, the electricity price fell sharply, to around 80 öre/kWh in the southern half of the country, compared to the record level of three kroner in August, but also somewhat lower than October last year.

That reduces inflation by more than what the Riksbank had expected, Isaksson says Torbjörn, noting that the effect could be even greater in November.

However, such developments might be temporary. There is still a substantial risk of high electricity prices this winter.

Food and service prices on the rise

According to Statistics Sweden, food prices have risen by around 16 percent in one year, from September 2021 to September 2022.

They have contributed significantly to lifting overall inflation. And that trend is likely to continue, economists predict.

“Food prices can continue to rise even in November and December,” Isaksson says.

Service prices also continue to rise. This applies to everything from hotels and restaurants to hairdressers and transport prices.

Overall, inflation has hardly peaked in Sweden yet, Isaksson and Stråberg believe.

“Inflation has spread so much now. The electricity price has been volatile, and this will be reflected in inflation in the coming months, Stråberg noted.

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MONEY

‘Swift and Eurovision’: Swedish inflation fell less than expected in May

The year-on-year inflation rate fell to 3.7 percent in May, according to new figures from Statistics Sweden.

'Swift and Eurovision': Swedish inflation fell less than expected in May

This is a drop of just 0.2 percentage points in so-called CPI inflation since April. Experts had predicted that inflation would fall by twice as much, to 3.5 percent.

“This is a setback,” Alexandra Stråberg, chief economist at Länsförsäkringar, told the TT newswire.

According to Statistics Sweden, inflation in May was primarily affected by increased housing costs, mainly due to rising interest rates for household mortgages, which pushed up the inflation figure. This was mitigated by some extent by lower electricity, and fuel prices have also had an effect.

“The inflation rate fell in May, even though most service prices increased,” Statistics Sweden statistician Caroline Neander said in a press statement. “It was electricity prices which mainly contributed to the decline.”

Month-on-month, May saw a rise in the prices of transport services – like car rentals, train travel and flights – as well as increased prices for hotel stays, package holidays and food.

This could be due to two major events which took place in Sweden in May: Taylor Swift concerts in Stockholm and the Eurovision Song Contest in Malmö.

“There could be a temporary Swift or Eurovision effect here,” Stråberg said.

The head analyst from Nordea, Susanne Spector, said that this could partially explain the rise, but added that it wouldn’t explain the rise in the cost of services too.

“That’s a risk factor for the central bank,” she told TT.

What does this mean for interest rates?

On June 27th, Sweden’s Riksbank central bank is set to make its next announcement on Sweden’s key interest rate, just one month after it lowered the rate for the first time in eight years.

Even before these inflation figures were announced, Riksbank governor Erik Thedéen made it clear that the bank is not planning on lowering interest rates, stating there would need to be “very large changes” to even begin to discuss it in June – and unexpectedly low inflation figures for May would not be enough on their own.

Now that inflation rates have dropped less than expected, it looks even less likely that the Riksbank will lower the key interest rate in two weeks’ time.

Spector from Nordea believes that the next interest rate drop will be in the autumn.

Länsförsäkringar still predicts three further drops to the interest rate this year, although Stråberg said these figures had increased the likelihood of the bank only cutting the rate twice.

“It depends on next month. There are a lot of months to go which need to confirm the fact that inflation is on a downward trajectory,” she said.

According to chief economist Robert Boije, the most important takeaway from the new figures is the fact that year-on-year inflation did not rise.

“Today’s inflation figures for May from Statistics Sweden don’t give any reason not to believe the conclusion that the spectre of inflation in the Swedish economy has been vanquished,” he told TT.

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