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ECONOMY

Sweden’s central bank brings in biggest rate hike in 22 years

Sweden's Riksbank has raised interest rates by 50 points to 0.75 percent, in its biggest rate hike in 22 years.

Sweden's central bank brings in biggest rate hike in 22 years
Sweden's Riksbank: Jonas Ekströmer/TT

“Inflation is much too high and is spreading throughout the economy,” the bank’s governor, Stefan Ingves, said. “This is noticeable and expensive, both for households and others, and is creating uncertainty in the Swedish economy. That’s why we need to hike the rate.” 

The central bank explained in a press release that a larger hike was required to “to ensure that inflation returns to target” and make it “clear to price- and wage-setters that the inflation target can continue to be used as a benchmark”. 

Annika Winsth, chief economist at the Nordea bank, said that anything less than a so-called “double increase” would have left inflation to continue increasing. 

“Anything else would have messed things up,” she said. “We have extremely high inflation, and also high domestic inflation. That’s why there’s a need to push back and the interest rate weapon is the tool the Riksbank has.” 

“What we’ve seen today is no shock,” agreed Jens Magnusson, chief economist at SEB. “Anything else apart from this raise by 50 points would have been a shock. Inflation has taken off in a way the Riksbank hadn’t expected. The signal this gives is that the Riksbank takes it seriously and is trying to get a grip on the situation.” 

In the press release, the bank said that prices for goods, food and services in Sweden had been increasing “considerably faster than expected” since the start of the year. 

The imbalances that have arisen as a result of demand bouncing back from the pandemic faster than businesses ability to supply, it said, had been “reinforced” by Russia’s invasion of Ukraine and new pandemic-related restrictions in China. 

 “The high rate of inflation in Sweden and abroad is affecting households and is undermining purchasing power,” it concluded. “Central banks around the world are now tightening monetary policy to cool down economic activity and bring inflation down.”

The Riksbank said that companies had begun to raise prices “unusually strongly in relation to how much costs have increased”, which was causing inflation to accelerate faster than expected. 

The bank said it was now predicting that its key interest rate would rise to 1.36 percent in the last three months of 2022, up from the 0.81 percent it predicted at the end of April. 

Between the start of April and the end of June next year, it will rise to 1.9 percent (up for 1.18 predicted in April), and in the last six months of 2025, the rate will hit 2.06 percent, it predicted. 

The central bank expects inflation to average at 7.6 percent over 2022 as a whole, up from six percent in its previous prognosis, falling to 7.1 percent in 2023. 

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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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