Swedish statistics agency published faulty inflation data

Sweden’s central bank was relying on bad inflation data when it decided to raise interest rates last week, Statistics Sweden has revealed.

According to the agency, it has been miscalculating the estimated price changes for shoes since the start of the year.

“The previously published inflation rates for April through July have therefore been somewhat misleading,” the agency said in a statement.

Statistics Sweden revised July inflation to 4.1 percent, down from the previously published level of 4.4 percent which had been the highest inflation rate recorded in Sweden in 15 years.

Meanwhile, the agency reported that inflation for August was 4.3 percent, up 0.2 percent from the revised figures for July.

The mistake had analysts wondering whether the Riksbank may have acted differently last week if the correct inflation figures had been known.

“It’s interesting against the background that [Riksbank head] Stefan Ingves in a number of interviews singled out the fact that inflation is too high today,” said Henrik Mitelman, head analyst at SEB bank, to the TT news agency.

However, Mitelman stopped short of declaring unequivocally that the revised data would have resulted in the Riksbank leaving rates untouched.

“Ah, it’s hard to say. But it would have been a piece of the puzzle and it would have ended up on the other side of the balance,” he said.

But former Riksbank vice-chair Villy Bergström doesn’t think the interest rate decision would have been different.

“I don’t think that a few tenths of a percent changes the analysis very much, especially when the trend is still that inflation is being pushed up. They are naturally frightened for dispersion effects and those risks still exist,” said Bergström to TT.

In explaining the August price increases, Statistics Sweden said the main driver were higher prices for clothing, which went up 6.9 percent. While prices on electricity, furniture, and mortgage interest also went up, their overall effects were mitigated by lower prices for fuel (down 4.1 percent), vegetables (down 5.5 percent) and package holidays (down 7.4 percent).


Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”