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Why are electricity prices in Sweden falling?

The electricity price shock in Sweden is over – at least for now.

Electricity
Electricity prices mightt be somewhat more moderate electricity prices this winter. (Photo by Krišjānis Kazaks / Unsplash)

The electricity price outlook for continued, relatively low electricity prices for the rest of the year looks favourable.

The record level of three kroner per kilowatt-hour in Southern Sweden in August has been almost forgotten.

In October, the average cost had come down to around 80 öre, even lower than the same month last year. In fact, it was the lowest since July 2021.

Almost halfway into November, the average price is around 40-45 öre per kilowatt-hour in Southern Sweden (electricity area 4), which can be considered historically normal levels.

Higher up in the country, the price is lower.

In recent days, households have been able to recharge their electric cars or turn on electric heating in the house at very favourable terms. The average price during the day on Friday and Saturday has been two öre per kilowatt-hour.

Worst-case scenario avoided

Although prices probably won’t remain that cheap when the winter and the cold hit, the worst price shock has now passed.

There are several reasons why analysts expect somewhat more moderate electricity prices this winter.

Some are weather-related, such as the fact that Norway, after a lot of rainfall, has now sorted out its previous water shortage in the reservoirs in the south of the country.

Furthermore, the weather has been mild – and is expected to stay that way for quite a while.

Gas prices decreasing

Another decisive factor is that gas prices have fallen strongly in Europe (note: gas is largely used for electricity production).

The reason? Full gas stocks despite cuts in Russian gas imports. Right now, it is almost difficult to take in all the gas flowing into Europe.

“There are a lot of tankers (with liquefied gas) outside the ports waiting to be unloaded,” Johan Sigvardsson, an analyst at the electricity trading company Bixia, pointed out.

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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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