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ECONOMY

Swedish inflation drops to 4.5 percent, beating expectations

Sweden's inflation fell faster than expected last month, new figures show.

Published: 14 March 2024 08:50 CET
Swedish inflation drops to 4.5 percent, beating expectations
Rising rents and mortgage costs in Sweden were moderated by lower electricity prices in February. Photo: Janerik Henriksson/TT

The yearly inflation rate according to the consumer price index (CPI) stood at 4.5 percent in February, down from 5.4 percent in January, according to number crunchers Statistics Sweden.

Experts had predicted an inflation rate of 4.7 percent, according to Bloomberg.

Increased housing costs in the form of rising rents and mortgages contributed to the inflation rate in February, but were moderated by lower electricity and fuel prices. 

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Inflation measured instead according to the CPIF metric – the consumer price index with interest rate fluctuations taken out of the equation – meanwhile fell from 3.3 percent to 2.5 percent.

That still keeps CPIF inflation slightly above the 2.3 percent recorded in December, as well as the Riksbank’s target of two percent.

The Riksbank, Sweden’s central bank, is expected to lower interest rates at some point this year, as soon as inflation is comfortably steady at around two percent.

The third common inflation metric, CPIF-XE, which excludes energy products, stood at 3.5 percent in February. That’s a decrease from 4.4 percent in January and the lowest rate since March 2022.

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MONEY

Swedish central bank chief: Economy entering ‘new phase’

Erik Thedéen, governor of Sweden's central bank, the Riksbank, believes that the country's "surprisingly resilient" economy is entering a new phase after a few years of inflation and rising interest rates.

Published: 20 May 2024 14:56 CEST
Swedish central bank chief: Economy entering 'new phase'

“Concerns remain, but from an inflation perspective, prospects look much brighter,” Thedéen said at an event at the Swedish Economic Association. “We are entering a new phase for monetary policy and for the Swedish economy, as inflation is now back close to the [two percent] target, which among other things enables real wage increases.”

Earlier in May, the central bank lowered the policy rate by 0.25 percentage points to 3.75 percent – the first time the rate has dropped in eight years, after a period of eight hikes between 2022 and 2023, where the rate rose from 0 to 4 percent.

These hikes were made in order to lower inflation, which at its highest point in December 2022 stood at 10.2 percent.

“The upturn [in inflation] was partly due to a series of global supply shocks that led to sharp cost increases for companies, and partly due to a large pent-up consumption need among households after the pandemic, and thus high demand,” he said.

“Together, these factors in turn contributed to a change in the nature of companies’ pricing behaviour. This manifested itself in more frequent price increases and a greater pass-through from cost increases to price increases.”

The most recent inflation figures from March and April this year put inflation at 2.2 and 2.3 percent, much closer to the central bank’s 2 percent target.

“We now know that inflation is by no means ‘dead’, as it was sometimes labelled when inflation was below the central banks’ inflation targets for a long period,” Thedéen said, before warning that prices may be more prone to increasing now than they were in the past.

“The threshold for raising prices may be lower now than it was before. For monetary policy, it will be important to monitor price-setting indicators,” he added.

He warned that we may not yet have seen the full impact of the hikes to the country’s policy rate, while describing the Swedish economy as “surprisingly resilient so far”.

“Interest rate-sensitive parts of the Swedish economy have of course been affected by the rate hikes. Household consumption has declined and residential investment has fallen sharply. But at an aggregate level, this has been offset by the relatively better performance of other parts of the economy.”

One factor behind this resilience, he said, was the high demand for labour.

“This may reflect the fact that companies have not anticipated a deep or prolonged downturn in economic activity and that real wages have been weak.”

Things are definitely looking brighter, but we may not be out of the woods just yet, he warned.

“There are some questions about what has happened to the structural economic relationships after the years of high inflation and, as always, there are risks of worse developments ahead. But so far, a ‘soft landing’ seems to be within reach.”

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