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INSIDE SWEDEN

Inside Sweden: Six questions and answers about the Swedish economy right now

Sweden's inflation rate is falling, but not as fast as experts have been hoping. What does this mean for all of us? The Local's editor tries to explain in our weekly Inside Sweden newsletter for members.

Inside Sweden: Six questions and answers about the Swedish economy right now
Sweden's inflation rate remains higher than expected. Photo: Fredrik Sandberg/TT

Hej,

I had a video call with an old university friend the other day and the main topic of our conversation was… mortgages.

Let me tell you, this is NOT what we used to talk about at uni.

We’re both looking to buy a new home in the next few months, and are struggling to make sense of all the various interest rates, inflation rates and mortgages. It’s hard to know exactly how the economy is going to affect us this year.

On the one hand, the Swedish economy seems to be in remarkably decent shape despite all the doom-and-gloom forecasts at the beginning of the year. On the other hand, everyone I know in Sweden is worried about the rising costs of living.

My friend, not based in Sweden, asked me a bunch of questions. Here’s how I tried to explain the situation:

What’s Sweden’s current rate of inflation?

Sweden’s year-on-year rate of inflation fell to 9.3 percent in June, down from 9.7 percent in May, according to the Consumer Price Index (CPI) as measured by number-crunchers Statistics Sweden, who announced the news on Friday.

If you instead look at the CPIF metric (which is basically the same as CPI but with fixed interest rates, removing the cost of mortgages from the equation), inflation fell from 6.7 to 6.4 percent.

What are the main drivers behind inflation right now?

In June, which is the latest month we have data for, higher interest expenses for home-owners were the main factor behind the still rather high inflation rate, contributing 3.1 percentage points.

Other drivers were food prices, hotel and restaurant visits, and price increases on recreational and cultural activities, including package holidays and international flights. Shopping for clothes, shoes, furniture and household goods also contributed to the inflation rate, said Statistics Sweden.

In other words: typical summer activities.

How does all of this affect me?

Well, if you’re a home-owner, or even if you’re renting, you’re probably paying much higher interest on your mortgage than you were this time last year. If you’re living in a BRF housing association (the most common form of apartment ownership in Sweden), your BRF’s own loans are likely more expensive, perhaps leading to higher fees for you.

In fact, interest expenses for BRF apartment-owners have increased by more than 100 percent since June last year, and interest expenses for other kinds of home-owners have gone up 88 percent.

You can probably expect mortgage rates to keep rising. The fact that inflation fell in June may seem like a good sign, but the problem is that experts had expected it to fall even further.

Sweden’s underlying inflation still remains high, and this will affect by how much the central bank, the Riksbank, decides to raise the country’s main interest rate (which currently stands at 3.75 percent) at its next meeting in September.

This in turn affects how banks set their interest rates on mortgages.

The Riksbank uses the CPIF as its metric, so that’s with increasing mortgage rates removed, but 6.4 percent is still much higher than its target rate of two percent.

It generally hopes that by increasing the main interest rate it will be able to push inflation down – which is happening, but slowly.

Even if you’re not a home-owner, your cost of living has probably increased in the past year.

The cost of international flights was 31 percent higher in June compared to last year, the cost of food was 13 percent higher, clothing and footwear 6 percent higher and restaurants 8 percent higher.

Electricity and fuel, however, cost 10 percent and 16 percent less, respectively, than last year.

If things are so expensive, why is the economy still trudging ahead?

Do you remember that the EU Commission predicted back in February that the Swedish economy would fare the worst of all EU countries this year? Its forecast stated that Sweden’s GPD would contract by 0.8 percent this year, the only economy in the union to shrink rather than grow.

Yeah, that didn’t happen. Nor did a predicted spring recession ever materialise.

In fact, the Swedish economy has proven to be remarkably and unexpectedly resilient this year. According to the latest report, Sweden’s GPD even increased in May.

Yay? Not necessarily. Higher growth leads to increased pressure on inflation.

So if the cost of living is higher, why are people still spending and pushing inflation up?

When they’re not blaming Beyoncé, experts believe that consumers in Sweden are currently using their savings to keep buying things, which is what’s keeping the economy going.

But come autumn when savings start to run low, things may become more difficult for consumers and the economy.

At around the same time, mortgage rates will probably increase (especially if the Riksbank raises the interest rate in September) as will the price of electricity in the colder months.

It might make sense not to spend all your savings this summer and keep as much as possible of your buffer.

What happens next?

Two key dates: Statistics Sweden is set to present Sweden’s next inflation update on August 15th, and the Riksbank will decide whether or not to again raise the interest rate on September 20th.

I hope this explanation from a non-economist helped. Thanks for reading!

Best wishes,

Emma Löfgren

Editor, The Local Sweden

Inside Sweden is our weekly newsletter for members that gives you news, analysis and, sometimes, takes you behind the scenes at The Local. It’s published each Saturday and members can receive it directly to your inbox, by going to your newsletter preferences.

Member comments

  1. Well described Emma! We were discussing with my wife on nowadays’ economic situation in Sweden (we live in Malmö) and I think that your article summarized things perfectly!

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INSIDE SWEDEN

Inside Sweden: What does Sweden Democrats’ election flop mean for foreigners?

The Local's editor Emma Löfgren rounds up the biggest stories of the week in our Inside Sweden newsletter.

Inside Sweden: What does Sweden Democrats' election flop mean for foreigners?

Hej,

The far-right Sweden Democrats have had a week of reckoning after they lost votes in the EU election – the first time in the party’s history that it’s performed worse in a national or EU election than previous elections. Thus far it had always been on an upward trajectory, a trend that is now broken.

In some districts it saw voters’ support reduced by up to a third, and in Sölvesborg (the popular party leader Jimmie Åkesson’s home town) where support also fell, there was talk of organising crisis meetings.

Let’s not exaggerate what this means. The Sweden Democrats get to keep their three seats in the European Parliament, and voting patterns for the EU election are usually different from the national elections (the Greens performed almost three times better than in the last national election less than two years ago).

A major poll this week suggested that the Sweden Democrats would win 19.5 percent of the vote if an election were held today – one percentage point lower than its 2022 election result, but better than its 13 percent in the EU election.

It is still a member of Sweden’s ruling Tidö coalition and it’s hardly the only party in favour of stricter migration: the right-wing Moderates and Christian Democrats, and the centre-left Social Democrats have all had a hand in the tightening of rules that have impacted foreigners in Sweden in recent years.

But its poor performance does tell us something, which may have at least a small chance at influencing the Swedish political debate in the years ahead.

It suggests that the Sweden Democrats are less able than many thought at mobilising its potential voters. Its voters are generally sceptical of the EU and less keen to vote in the EU election, not even for the Sweden Democrats.

It suggests that Åkesson overplayed his hand when he wrote an opinion piece in the run-up to the election seeking to legitimise the concept of folkutbyte, a clear reference to the Great Replacement Theory that underpinned the deadly terror attack mounted by the Norwegian extremist Anders Breivik.

It suggests that the party played it wrong when it launched a verbal attack on TV4, refusing to apologise after the broadcaster revealed that the party operated a so-called troll factory. Perhaps the public thought showing just a little bit of contrition would have been a more appropriate reaction.

It suggests that peace, democracy, the climate and European cohesion – none of which are Sweden Democrat core issues – are important to voters.

And it rocks the boat for a party that perhaps for the first time failed at what it claims to do better than anyone else: gauging the mood of the nation.

What topics would you like The Local to cover?

It’s a challenging time for the media industry with volatile tech algorithms and advertising markets hitting even the biggest of newsrooms. That’s why I wrote a couple of weeks ago that it’s such a relief that our focus and number one resource here at The Local isn’t the tech giants, but our readers.

I’d like to take a moment to ensure that we’re continuing to meet your needs. Please fill out this survey to suggest stories we should cover in the year ahead.

In other news

The number of Swedish work permits rejected because the applicant’s salary is too low has increased by almost 2,000 percent since the country tightened the rules last year, according to new figures supplied to The Local.

There are plenty of things Sweden could do to help foreigners integrate, said The Local’s readers when we asked for their suggestions as to how the country could become more inclusive.

Saudi Arabia, the UAE and India are the top investment destinations for Swedish companies, meaning that businesses are planning on increasing their investments in these markets over the next 12 months.

English speakers who don’t speak Swedish can currently only donate blood in Stockholm, but The Local has been told of plans to roll out the service to Gothenburg and Uppsala in the year ahead.

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

Hundreds of British citizens are still battling rejected applications to stay in Sweden, nearly two and a half years after the deadline to apply for post-Brexit residency status. The Local spoke to four of them.

Sweden’s Migration Agency has sent an analysis to the EU Commission, in which it concludes that its near blanket refusal of late applications for post-Brexit residency has been ‘at the right level’ and is of ‘a high legal quality’.

The number of beaches in Sweden which are checked and graded is growing every year, making it easy to make sure that where you are swimming is clean and safe. These are the cleanest beaches in Sweden this summer.

From TV schedules to bars and cafes, here are your options for watching all matches of the Euro 2024 football tournament in Sweden.

Thanks for reading and have a good weekend!

Best wishes,

Emma

Inside Sweden is our weekly newsletter for members which gives you news, analysis and, sometimes, takes you behind the scenes at The Local. It’s published each Saturday and with Membership+ you can also receive it directly to your inbox.

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