Swedish prices deflate due to cheap vacations

Cheaper holiday packages sent Sweden’s consumer prices sliding further in August, according to new statistics released on Thursday.

Swedish prices deflate due to cheap vacations

This was the fifth month running of falling consumer prices in Sweden. Statistics Sweden, which published the data, said the main reason for the drop was an 8.2 percent fall in the cost of package holidays.

Swedish prices fell by 0.8 percent on a 12-month basis in August, Statistics Sweden said in a statement, after dropping by 0.9 percent in July.

The statistics office also said from July to August, prices increased by 0.2 percent.

The Swedish economy was hit by consecutive months of rising prices last year, peaking at a 4.4 percent increase in September.

Deflation can hit economic growth because it reduces businesses profits and discourages investment.

It also leads consumers to put off buying goods in the hope that prices will continue to fall.

Sweden’s central bank forecasts that prices will drop 0.3 percent this year and rise by 1.2 percent in 2010.

In Norway, inflation in August slowed to 1.9 percent, compared to 2.2 percent the previous month.

Statistics Norway said a drop in the cost of electricity bills was one of the key drivers behind the fall in consumer prices.

But core inflation, excluding energy and tax variations and the measure used by the central bank in setting its monetary policy, increased from 2.3 percent in July to 2.5 percent.

In Denmark, consumer prices rose 1.1 percent on a 12-month basis owing to a rise in the cost of clothing and transport in August, after a rise of 1.0 percent in July, according to data from the official Danish statistics agency.

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Sweden’s growth ‘better than expected’

Sweden’s gross domestic product grew 2.6 percent in the second quarter of 2014 compared to the same period a year earlier, with the economy performing much better than previously thought.

Sweden’s growth 'better than expected'
Strong household consumption is helping Sweden's growth. Photo: Mona-Lisa Djerf/SvD/TT

The second-quarter figures from Statistics Sweden (SCB) also showed GDP up 0.7 percent compared to the first quarter.

The news will come as a boost for the Prime Minister elect, Stefan Löfven, as the agency revised its preliminary figures for the quarter upwards by 0.7 percentage points.

Financial experts have expressed concern over the “fog of uncertainty” brought on by political instability in a hung parliament.

Sweden’s currency, the krona, took a small hit in the immediate aftermath of Sunday’s election.

Election puts Sweden in 'fog of uncertainty'

“To some extent SCB had expected an increase since the preliminary figures come out so early,” Mats Dillén, director-general of the National Institute of Economic Research (NIER), told The Local.

“But it is still better than they expected and, to be honest, it’s also somewhat stronger than we had anticipated.”

Mats Dillén said the strong growth was fuelled partly by levels of household consumption that were “very strong in a European perspective.”

Investments in the housing sector were also having a positive effect, he said.

The export sector however remained sluggish, due mainly to low demand in the eurozone.

NIER was sticking to its general prognosis for the year, Dillén said, with early third-quarter figures showing that Swedish exports and a eurozone recovery were both “standing still somewhat”.

For Stefan Löfven the figures will provide some welcome impetus as he seeks to form a government but Dillén said the autumn slump meant the finance ministry would not get over-excited.  

As for next year, “most observers expect there to be more growth allied with falling unemployment,” but OECD figures showing slow growth in the eurozone meant prospects remained “quite uncertain”, said Dillén.