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ECONOMY

EXPLAINED: Sweden’s rising prices and what’s being done to stop them

Sweden is experiencing the highest inflation in 30 years. What's behind the price rises and what can the government do about it?

EXPLAINED: Sweden's rising prices and what's being done to stop them
The prices on display at a petrol station in Sweden. Photo: TT

What are the factors behind the increase in prices in Sweden? 

The biggest single factor has been the rise in oil and gas prices, which has pushed up transport and manufacturing costs across the world, pushing up prices more or less across the board. 

The Covid-19 pandemic has also disrupted the production and transportation of goods, leading to shortages as the lifting of restrictions releases pent-up demand. 

Finally, most countries have been running expansive fiscal and monetary policies. The US, for instance, has so far sent out $1,400 cheques to 127 million households. 

SEB’s senior economist, Robert Bergqvist, told The Local that Sweden if anything faced slightly lower inflationary pressure than other countries. 

“One reason why Sweden has lower inflation is that we still have slower wage growth, because we have wage agreements that last for three to four years,” he said. 

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What has the government done to help people in Sweden? 

Quite a lot. 

In January it offered an electricity rebate of up to 2,000 kronor per month to all those hit by high electricity prices.

On March 14th, it launched a package of subsidies for car-owners. 

This included a pay-out of between 1,000 to 1,500 kronor to every car-owner in the country, which has cost the government 13.9bn kronor. 

It also included a temporary reduction in tax on petrol and diesel to the lowest level allowed by the European Union. The government said that this would reduce the price by 1.3 kronor per litre. This will reduce the government’s tax intake by 3.8 billion kronor. 

Finally, it has also a temporary increase in housing benefit for families with children, which could provide up to 1,325 kronor in extra benefits a month between July and December this year. 

Are the other political parties satisfied? 

Of course they’re not. This is an election year.

The Moderate Party are pushing for a tax cut that will reduce the price at the pump by five kronor a litre for diesel, and “several kronor” for petrol.

The Sweden Democrats party has proposed a package it claims will reduce the price of diesel by 9.45 kronor and petrol by 6.50 kronor, at a cost of 34bn kronor. 

The only party that is against reducing fuel tax is the Green Party, which instead wants to pass 20bn kronor to households living in the countryside to help them deal with the additional costs. Subsidising fuel, the party argued, meant “filling Putin’s warchest”. 

What about economists? 

Robert Bergqvist said that Sweden’s relatively strong government finances meant that it could easily afford to be this generous to lessen the pain for citizens. 

“It’s nothing that will jeopardise the very strong government finances that we have,” he said. “Sweden can afford a more expansionary fiscal policy.” 

The only risk, he argued was that having what he called a “slightly more expansionary fiscal policy” could end up pushing prices up even higher. “It could be a bit inflationary,” he said. 

What can Sweden’s central bank do? 

Controlling inflation is one of the key purposes of a central bank, and Sweden’s Riksbank is instructed to aim for inflation of two percent. 

The Riksbank’s current position is that there will be no increase in interest rates until the second half of 2024. But the prices rises of the last six months will almost certainly force it to act sooner. 

In an interview with Sweden’s state broadcaster SR last week, the bank’s governor, Stefan Ingves, said that the bank would need to change its position. Most economists in Sweden now expect a rate rise in the second half of this year, or at the start of next year. 

Ingves’s deputy, Anna Breman, said in a speech on Wednesday that it, now “now looks like it would be reasonable to bring forward a rise in interest rates”. 

Will Sweden manage to get prices under control? 

Bergqvist said he believed that the Riksbank had a relatively short window in which to act if it was to avoid the risk that high inflation expectations become firmly established among companies and wage earners. 

“We have new wage negotiations which will start at the end of this year, and you will have new wage deals in the first quarter of next year,” he said. 

If the unions expect higher inflation in the coming years, they are likely to push for more generous wage hikes, which could in turn lead to rising costs for companies, and so increase inflation still further. 

“When I talk to companies and households, everyone says that we have an inflation problem, that prices are going up, and I think we haven’t seen the worst yet,” he said. “I think inflation will continue to rise. Companies say costs are rising and that it’s also quite easy to raise prices right now.” 

If the Riksbank does not take action soon, he argued, then high inflation expectations will become more too established to reduce much higher interest rates, which could cause a recession.  

“And that will make it much more difficult for the Riksbank to bring inflation down to two percent,” he said. 

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ECONOMY

Inflation rate dips in Sweden for first time in seven months

The inflation rate in Sweden fell in July for the first time in seven months, according to official data from Statistics Sweden (SCB), indicating that rate rises may be having an impact on rising prices.

Inflation rate dips in Sweden for first time in seven months

“Lower prices for electricity and fuel contributed to the inflation rate sinking for the first time since January,” said Carl Mårtensson, a price statistician at the agency, in a press release.

The official inflation rate for July this year was 8 percent, down from 8.5 percent in June, and below the consensus estimate of economists at 8.3 percent.

The fall was almost exclusively the result of falling prices for electricity and fuel, with the price of electricity falling by 8.3 percent month on month and the price of petrol and diesel falling 5.6 percent. Excluding energy prices, the inflation rate rose to 6.6 percent from 6.1 percent in June. 

Olle Holmgren, Chief Strategist at Sweden’s SEB Bank said that while inflation pressure remained high, the numbers were cause for hope. 

“Inflation pressures remains high, but the composition of price changes gives some hope that the strong upward trend could be losing some steam,” he wrote in a comment

He noted that the fall in fuel and electricity prices had been offset by an “extremely strong upturn in food prices”, 13.5 percent year on year. 

Alexandra Stråberg, chief economist at the Länsförsäkringar insurance company, however, said that she did not think that the dip in headline inflation meant that the risk of rising prices was over. 

“Unfortunately, it probably hasn’t turned the corner yet,” she told TT. “This is only a short pause.” 

In the chart below from SCB’s press release you can see how four out of the agency’s inflation indexes have dipped in July, after a year of steady rises. 

The index which excludes energy prices, however, has been rising steadily since December. 

Source: Statistics Sweden
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