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Sweden hits inflation target for the first time in six years

Sweden reached its inflation target for the first time in more than six years in July, which could spell a return to normalized monetary policy after years of negative interest rates.

Published: 15 August 2017 12:24 CEST
Updated: 15 August 2017 17:32 CEST
Sweden hits inflation target for the first time in six years
It is likely inflation will drop again in autumn. Photo: Fredrik Sandberg/TT

The consumer price index rose from 1.7 percent in June to 2.2 percent last month, while consumer price inflation with a fixed interest rate rose from 1.9 percent to 2.4 percent – the latter exceeding the target for the first time since December 2010.

Some experts said that the news, which exceeded expectations, could potentially forecast an end to the aggressive monetary policy the country's central bank, the Riksbank, has been running for the past two years.

The Riksbank took the landmark decision to slash the key interest rate, the repo, below zero in February 2015, hoping that the strategy would boost inflation to raise the price of everyday goods and services which had been stagnant in recent years, and therefore improve the Nordic nation's economic prospects.

But until July, the inflation rate had been slow to reach its target of two percent.

“What we can see is that Swedish inflation has risen from the low levels we had a few years ago,” Anna Breman, chief economist at Swedbank, told the TT news agency.

“This strengthens our view that the Riksbank will raise interest rates in spring 2018.”

She said it was however unlikely the news would alter its strategy in the short term.

The Riksbank said in April that it would not adjust the record-low interest rate, currently at -0.50 percent, this year as previously intented, but would extend it until mid-2018.

It is also likely that inflation will drop after the summer boost – caused by increased air travel and charter holidays in July – but Breman said she thought it would continue to fluctuate around two percent.

The Financial Times quoted analysts at ING as warning that “we don't expect the July Swedish CPI data to prompt a reaction from the Riksbank as the central bank has a long history of erring on the cautious side due to concerns about a strong krona. Thus, any boost from a strong CPI release may prove to be one-off”.

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MONEY

How to protect your Swedish savings when the stock market tumbles

Recent stock market developments have made consumers in Sweden worried about the savings they have invested in the market.

Published: 5 August 2024 14:44 CEST
How to protect your Swedish savings when the stock market tumbles

Stock market volatility can be unsettling, especially when it hits close to home.

On Monday, the Stockholm stock exchange mirrored global market turmoil, with the OMXS index dropping 4.8 percent in morning trading. By 11 am, there was a slight recovery, but the index remained 2.6 percent down.

READ MORE: Stockholm stock exchange opens in the red amid global market jitters

Big names in Swedish industry weren’t spared: Boliden, a major mining company, dropped 3 percent, defence giant Saab fell 1.5 percent, and engineering firm Sandvik declined by 2.6 percent. In the banking sector, SEB took a 2.4 percent hit, while Swedbank dropped 3.6 percent.

This turbulence in the Swedish market came after significant drops in Japan’s Nikkei 225 index, which experienced its most significant one-day fall since the 1987 Black Monday Crash, and similar declines in markets across South Korea, Frankfurt, London, and anticipated losses on Wall Street.

In these uncertain times, many Swedish consumers with money invested in the market wonder whether they should do something to safeguard their savings.

Avoid impulsive decisions, expert warns

Stock market volatility can raise concerns about the safety of your savings, but according to SEB household economist Américo Fernández, there’s no need to panic.

“Should they be worried? I mean, no. I would say that this is how the stock market works: there’s a lot of uncertainty and risk connected,” he told The Local. 

“When you have savings on the global stock exchanges, this will happen, especially when we’ve had at least six months of really, really good returns – maybe even too good. Then, this is a little bit expected.

“But of course, it’s always dramatic when we have such developments in the stock market in just one or two days.”

Slow and steady wins the (investment) race

For those wondering how to protect themselves against such crashes, Fernández emphasised a consistent and steady approach to investing.

“The most common thing, the best strategy for the broad masses, is to save on a monthly basis. And this is what many Swedes do; our surveys show that 9 out of 10 Swedes save on the stock market every month. This is precisely what you should do: invest in a mutual fund, which is quite common in Sweden,” he said.

“In circumstances such as these, you buy more at a lower price, instead of timing the stock market, which is almost impossible, continue your monthly investments through mutual funds. That’s a good way of diversifying your portfolio.”

READ ALSO: Will the krona’s decline stop Riksbank from cutting rates?

Ignore the alarmist headlines

The SEB household economist also advised against reacting hastily to alarming headlines.

“Another thing that households should be aware of is that when you see alarming headlines, you should sit and calmly ride the wave out.

“It’s understandable that a lot of people are affected by herd mentality when we have these negative headlines. Everyone, but especially households with tiny savings, acts and sells, and then they buy again when the headlines are positive, when the stock exchange is at high levels…

“That is the opposite of what you should do. Try to neglect these things and be cool in these circumstances, even though it seems bad and hurts your wallet. However, if it hurts your wallet too much, that might be a signal that you have too much money in the stock market (laughs), which can be common for younger investors. Although they have had it pretty good recently,” he noted.

This advice is not only applicable to Sweden but also relevant across Scandinavia, according to Fernández.

“I think it’s applicable. Across Scandinavia, all Nordic countries save a lot of money on the stock exchange, partially because the pension system isn’t fully funded by the government,” he said.

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