Swedish inflation drops slightly in August

Sweden's consumer price index (CPI) remained unchanged between July and August, according to Statistics Sweden (SCB) with the annual inflation rate dropping to 0.9 percent, down from 1.1 percent in July.

“It looks like clothes sales, which are normally in July, have extended a little and affect even August figures. This effect will be reversed, at least in part, in September,” said Per Selldén at Swedbank regarding the development of consumer prices.

Analysts had forecast an average price rise of 0.1 percent, and thus the August figure was somewhat lower than expected.

“Initially it is lower than expected. But if you look at the details then there shouldn’t be any market effects. It should not have any effect on monetary policy,” Selldén said.

Prices on foreign air travel fell by 20.9 percent between July and August, following a strong climb in the previous month, and contributed a 0.1 percentage point decline in consumer prices.

Price reductions on charter holidays of 7.1 percent pulled the figure down a further 0.1 percentage points.

Higher interest rate costs for homeowners meanwhile pushed consumer prices up by 0.1 points.

Sweden’s Riksbank raised the repo rate by 0.25 percentage points to 0.75 percent on September, the second consecutive 0.25 point as the economy returns to normal conditions following the fall out of the finance crisis.

The underlying rate of inflation as measured by CPIX, (CPI excluding the effects of changes in interest rates on mortgage loans, and direct changes in taxes and subsidies), amounted to 1.1 percent in August.

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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.